Question

Nathan Industries (NTI) has 200 million shares outstanding. In 2020, NTI's net income will amount to $600 million. NTN has and will continue to payout 2/3 of total earnings to share holders: 31.29% as dividend and 68.71% to repurchase its shares. We also know that NTI's earnings will growth 5% a year, while its payout policy will remain unchanged over the years. If NTI's equity cost of capital is 10%, please estimate NTI's share price.

		$40.00
		$60.00
		$80.00
		$39.05

Answer 1

- Net Income = $600 million

Total payout in year 2020 =  2/3 of total earnings

Expected Total payout = $600 million*2/3 = $400 million

expected Total payout per share(D1) = $400 million/200 million shares = $2 per share

- Growth rate(g) = 5%

- Cost of Equity capital(Ke) = 10%

Calculating the NTI"s share Price:-

P0 = $40

So, Estimate NTI's share price is $40

Option A

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