Question

Suppose Compco Systems pays no dividends but spent $5.01 billion on share repurchases last year. If​ Compco's equity cost of capital is 12.4%​, and if the amount spent on repurchases is expected to grow by 8.5% per​ year, estimate​ Compco's market capitalization. If Compco has 5.7 billion shares​ outstanding, to what stock price does this​ correspond?

Answer 1

Market capitalization = CF0(1+g)/(rs-g)

                = 5.01(1+.085)/(.124-.085)

               = 5.01 * 1.085/ .039

               =$ 139.3808 billion (rounded to 139.38 )

stock price = Market capitalization/shares outstanding

              = 139.3808 / 5.7

              =$ 24.45 per share