Beaksley SA is a very cyclical type of business which is reﬂected in its dividend policy.The ﬁrm pays a €2.00 a share dividend every other year.The last dividend was paid last year.Five years from now, the company is repurchasing all of the outstanding shares at a price of €50 a share.At an 8% rate of return, what is this equity worth today?

Question

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The equity value today is calculated by discounting the future cash flows (dividends and repurchase price) back to the present value using the 8% rate of return. The dividends are paid every other year, so there will be a €2 dividend in year 1 and year 3. The repurchase price of €50 is in year 5. The present value of these cash flows is approximately €37.21.

Beaksley SA Is a Very Cyclical Type of Business Which