The shares outstanding of RING Inc. are 321 million. At the end of the year, the...

The shares outstanding of RING Inc. are 321 million. At the end of the year, the company expects its earnings to be $641 million. The equity cost of capital of the company is 11%. The firm pays out 50% of its earnings in total: 20% used to repurchase shares and 30% paid out as dividends. If earnings are expected to grow at a constant rate of 7% per year, what is the share price of RING Inc?

Select one:

$12.48

$37.44

$49.92

$24.96

Expert Solution

Solution:

Earning = $641,000,000

Cost of capital = 11%

Growth rate =7%

Payout = 50%

Total Value = $641 million * 50% / ( 11% -7%) = $8,012,500,000

Share price = Total value / Outstanding share = $8,012,500,000 / 321,000,000 = $24.96

Correct option is D) $24.96

jeff jeffy answered 2 years ago

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