ABC has 2,500 shares outstanding and the stock price is $280. Its dividend is expected...
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Finance
ABC has 2,500 shares outstanding and the stock price is $280. Its dividend is expected to grow indefinitely by 5% a year and the planned dividends for the next few years are as below:
Year 1: Dividend per share $20; Year 2: Dividend per share $21; Year 3: Dividend per share $22.05; Year 4: Dividend per share $23.15
Unexpectedly, the CFO announces that the company will distribute half of the excess cash in the form of dividends, and the rest in the form of share repurchases. The repurchased stock will not be entitled to the dividend.
1. What is the total value of the company before and after the announcement? 2. What is the value of one share? 3. What are the expected dividends per share for year 1 and year 2?
Hint: The Ex-div stock price in year 1 = Stock price at year 0 * (1 + cost of capital)
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