1) Cooperton Mining just announced it will cut its dividend from $4.11 to $2.61 per share...

1) Cooperton Mining just announced it will cut its dividend from $4.11 to $2.61 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.5% rate, and its share price was $48.92. With the planned expansion, Cooperton's dividends are expected to grow at a 4.9% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment?

2) Suppose Compco Systems pays no dividends but spent $4.95 billion on share repurchases last year. If Compco's equity cost of capital is 11.6%, and if the amount spent on repurchases is expected to grow by 8.3% per year, estimate Compco's market capitalization. If Compco has 5.3 billion shares outstanding, to what stock price does thiscorrespond?

Expert Solution

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jeff jeffy answered 2 years ago

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