Question

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 124 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?

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

Answer 1

Solution :-

Total Current Market Value = Number of share * Price per share

= 3,000,000 * $88

= $264,000,000

Now, The Dividend Paid Out = Excess Cash Flow * Dividend Payout

= $4,800,000 * 40%

= $1,920,000

So, Market Cap after Dividend Paid out = $264,000,000 - $1,920,000

= $262,080,000

So, Price per share = Market Cap / Number of share

= $262,080,000 / 3,000,000

= $87.36 Per share

Average Number of Share = 124

So, value of Portfolio = 124 * 87.36

= $10,832.64

= $10.832 K

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