Answered: 2.3%, and if the amount spent on…

2.3%, and if the amount spent on repurchases is expected to grow by 8.9% pe as 5.9 billion shares outstanding, to what stock price does this correspond?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Suppose Compco Systems pays no dividends but spent $5.15 billion on share repurchases last year. If Compco's equity cost of capital is
12.3%, and if the amount spent on repurchases is expected to grow by 8.9% per year, estimate Compco's market capitalization. If Compco
has 5.9 billion shares outstanding, to what stock price does this correspond?

Expert Solution

Step 1

Equity cost of capital refers to the sum value of money a corporation needs to pay in order to fund or in order to raise money from the market. It is basically the expected returns the investors expect from the company they have invested in.

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