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Tolo Co. plans the following​ repurchases: $10.5 million in one​ year, nothing in two​ years, and...

Tolo Co. plans the following​ repurchases: $10.5 million in one​ year, nothing in two​ years, and $20.1 million in three years. After​ that, it will stop repurchasing and will issue dividends totaling $26 million in four years. The total paid in dividends is expected to increase by 3% per year thereafter. If Tolo has 1.8 million shares outstanding and an equity cost of capital of 11.1%​, what is its price per share​ today?

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Expert Solution

Terminal value in year 4 =D4(1+g)/(Rs-g)

                        = 26(1+.03)/(.111-.03)

                        = 26 *1.03 / .081

                        = 330.61728 million

Total present value =[PVF 11.1%,1*CF1]+[PVF 11.1%,3*CF3]+[PVF11.1%,4*CF4]+[PVF11.1%,4*Terminal value in year 4]

= [.90090*10.5]+[.72922*20.1]+[.65636*26]+[.65636*330.61728]

= 9.45945+ 14.65732+ 17.06536+ 217.00396

= 258.18609 million

Price per share =Total present value/number of shares outstanding

              = 258.18609 /1.8

               = $ 143.44 per share

**find present value factor using the formula :1/(1+i)^n where i = 11.1% and n =1,3,4

jeff jeffy answered 1 year ago
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