**Shatin International: Stock Price Evaluation**Shatin International has a total of 10.5 million shares and an equity cost of capital at 12.5%. The company is projected to distribute a total dividend of $20.4 million annually, indefinitely. Recently, Shatin announced plans to amplify its shareholder payouts. Rather than raising dividends, the company intends to maintain its current dividend rate while initiating an annual stock repurchase program of $9.7 million.### Key Information:- **Total Shares:** 10.5 million- **Equity Cost of Capital:** 12.5%- **Annual Dividend:** $20.4 million- **Stock Repurchase Plan:** $9.7 million annually### Question:- **Estimate Shatin's Stock Price Post-Announcement:** What is the projected stock price of Shatin after the announcement to maintain dividends and start a stock repurchase?This presents an opportunity to discuss the effect of stock repurchase on stock prices and company valuation.

Total Expected Payout per share=Expected Dividends+Expected RepurchasesShares Outstanding Stock…

Shatin Intl. has 10.5 million shares, an equity cost of capital of 12.5% and is expected to pay a total dividend of $20.4 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $9.7 million of stock each year as well. What is your estimate of Shatin's stock price after this announcement?

Shatin Intl. has 10.5 million shares, an equity cost of capital of 12.5% and is expected to pay a total dividend of $20.4 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $9.7 million of stock each year as well. What is your estimate of Shatin's stock price after this announcement?

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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