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A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was...

A firm has an excess cash flow of $4.8m. It had 3m shares outstanding and was considering paying a cash dividend, corresponding to a 40% payout. The stock traded in the market at $88.00 per share. Assume that the average investor holds 131 shares of the company’s stock.

Note: The term “k” is used to represent thousands (× $1,000).

Required: What would be the average portfolio value after a re-purchase scenario?

$_______k Do not round intermediate calculations. Input your answer in thousands ($k) rounded to 3 decimal places (for example: 28.31k).

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Answer #1

Ans:Average Value of Portfolio= Average Number of Share*Value of Share

=> Price Per Share= Market Cap/Number of Share

Market Cap after Dividend Payout= Dividend Payout- Total Current Market Value

Total Current Market Value= Number of Share* Price Per share

=> 3,000,000*88

=> 264,000,000

Dividend Payout= excess Cash flow* dividend Payout

=> 4,800,000*40%

=> 1,920,000

Market Cap after dividend Payout= 264,000,000-1,920,000

=> 262,080,000

Price per share=262,080,000/3,000,000

=> $87.36 Per Share

Average Portfolio Value after a re-purchase= $87.36*131

=> 11,444.16 or 11.44 K

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