Question

In: Finance

Taggart Transcontinental pays no dividends, but spent $4 billion on share repurchases last year. Taggart's equity...

Taggart Transcontinental pays no dividends, but spent $4 billion on share repurchases last year. Taggart's equity cost of capital is 13% and the amount spent on repurchases is expected to grow by 5% per year. Taggart currently has 2 billion shares outstanding. Taggart's market capitalization is closest to:

A. $25 billion

B. $31 billion

C. $40 billion

D. $50 billion

Solutions

Expert Solution

Amount spent on share repurchase last year(SR0) = $4 billion

Amount spent on repurchase are expected to grow by(g) = 5% per year

Equity Cost of Capital(Ke) = 13%

Calculating the market Capitalization of company using Gordan's Growth Model:-

Market Capitalization = SR0(1+g)/(Ke-g)

Market Capitalization = $4 billion*(1+0.05)/(0.13-0.05)

= $4.2 billion/0.08

Market Capitalization = $52.5 billion

So, Taggart's market capitalization is closest to $50 billion

Option D

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Under reformulated cash flow statement why is under equity financing flows is dividends and share repurchases...
Under reformulated cash flow statement why is under equity financing flows is dividends and share repurchases positive and issues negative? Under debt financing flows why is net purchase of financial assets and interest on debt positive and interest on financial assets and net issue on debt negative?
Ishiguro Transcontinental paid a dividend of $4.15 last year and the company anticipates this will grow...
Ishiguro Transcontinental paid a dividend of $4.15 last year and the company anticipates this will grow at 3.70% for the foreseeable future. The appropriate discount rate (expect return) for the stock is 12.40%, Ishiguro's stock price is closest to: A. $34.71. B. $49.47. C. $47.70.
Q1) Last year, a company paid a dividend of $0.75 per share. Dividends for the next...
Q1) Last year, a company paid a dividend of $0.75 per share. Dividends for the next year, will increase by 167% and then by 50% in the following year. After that, dividends are expected to grow at a constant rate of 10% every year. If the required return for investments of similar risk is 15% and the market price of the stock is $55, would you buy the stock today? Explain your answer.
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and the next dividend will be paid in 1 year. The dividends are expected to remain constant at $4.50 per share for the next 10 years, after which the dividends are expected to decrease at a rate of 0.5% per year. The annual cost-of-capital is 15.50%. Find the fair value of the stock today. (b)       Consider the same stock as described in part (a), except...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and the next dividend will be paid in 1 year. The dividends are expected to remain constant at $4.50 per share for the next 10 years, after which the dividends are expected to decrease at a rate of 0.5% per year. The annual cost-of-capital is 15.50%. Find the fair value of the stock today. (b) Consider the same stock as described in part (a), except...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a)       Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and the next dividend will be paid in 1 year. The dividends are expected to remain constant at $4.50 per share for the next 10 years, after which the dividends are expected to decrease at a rate of 0.5% per year. The annual cost-of-capital is 15.50%. Find the fair value of the stock today. (b)       Consider the same stock as described in part (a), except...
4. ESPN currently pays the NFL $1.1 billion per year for eight years for the right...
4. ESPN currently pays the NFL $1.1 billion per year for eight years for the right to exclusively televise Monday Night Football. What is the net present value of this investment if the parent Disney Company has an opportunity interest rate equal to its cost of capital of 9 percent. Fox and CBS agreed to pay $712 million and $622 million respectively for six year to televise Sunday afternoon NFC games. What was that worth?
Think about the non-tax-related differences between share repurchases and dividends. Describe the firms in which each...
Think about the non-tax-related differences between share repurchases and dividends. Describe the firms in which each difference would be relatively more important
1. Do investors generally prefer dividends or share repurchases? Support your answer. 2. What are some...
1. Do investors generally prefer dividends or share repurchases? Support your answer. 2. What are some considerations a company should take into account when establishing dividend policy?
Lawrence comp paid $2.00 per share in common stock dividends last year. The company will allow...
Lawrence comp paid $2.00 per share in common stock dividends last year. The company will allow its dividend to grow at 8 percent for 7 years, and after that the rate of growth will be 6 percent forever. What is the value of the stock if the required rate of return is 10 percent? the Lawrence company is subject to capital rationing and has a capital budget of $2,000,000; the firm's cost of capital is 16 percent. USE EXCEL FORMULAS...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT