You expect X-Co will pay a dividend of $76 million and repurchase $100 million of its common shares next year (Year 1) with both expected to grow 8% in Year 2 and 6% in Year 3. If you expect the company to be sold for $12 billion at the end of Year 3, and you have calculated the cost of equity to be 8.4%, what do you estimate the true value of the company’s net worth to be now? (First draw a timeline. Assume all cash flows are at the end of the year.)
You expect X-Co will pay a dividend of $76 million and repurchase $100 million of its common shares next year (Year 1) with both expected to grow 8% in Year 2 and 6% in Year 3. If you expect the company to be sold for $12 billion at the end of Year 3, and you have calculated the cost of equity to be 8.4%, what do you estimate the true value of the company’s net worth to be now? (First draw a timeline. Assume all cash flows are at the end of the year.)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 9MC
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You expect X-Co will pay a dividend of $76 million and repurchase $100 million of its common shares next year (Year 1) with both expected to grow 8% in Year 2 and 6% in Year 3. If you expect the company to be sold for $12 billion at the end of Year 3, and you have calculated the
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