Valence Electronics has 217 million shares on issue. It expects earnings at the end of the year of $760 million. Valence pays out 40% of its earnings in total - 15% paid out as dividends and 25% used to repurchase shares. If Valence's earnings are expected to grow by 6% per year, these payout rates do not change, and Valence's equity cost of capital is 8%, what is Valence's share price?

Question

Quizplus · Accepted Answer

The correct answer is C because the share price is calculated as the present value of the future dividends and share repurchases, discounted at the equity cost of capital. The future dividends and share repurchases are calculated as a percentage of the expected earnings, which are expected to grow by 6% per year.

Valence Electronics Has 217 Million Shares on Issue