Question

Video New Productions (VNP) has 200 million shares outstanding. In 2020, VNP's net income will amount...

  1. Video New Productions (VNP) has 200 million shares outstanding. In 2020, VNP's net income will amount to $600 million. VNP 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 VNP's earnings will growth 5% a year, while its payout policy will remain unchanged over the years. If VNP's equity cost of capital is 10%, please estimate VNP's share price.

    $40.00

    $60.00

    $80.00

    $39.05

Homework Answers

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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