Chapter 16- Qn 20

a) This part is cool. It will remain same at 140x500=70,000

b) In this part, for year 1, calculation is like this:
We calculate r from g, Div1 & P.
As P0 = Div1 /(r-g).
Accordingly in year 1, shares will be repurchased at the increased price, i.e., $167. Number of
repurchased shares=(0.5x20x5000)/167=299 shares.. Now we have 5000-299 = 4701 shares
Total dividend payments is =50,000/4701=$10.61 /share
For year 2, stock price= (167-10.64)*(1+r)=186.5
Number of shares that can be repurchased=50,000*1.05/186.5= 281.5~281 or 282..
Number of shares remaining= 4701-281=4420.
Total dividends payment=50,000*1.05/4420=11.88
Dividend per share growth of 11.7% (Dividends grow at 5% and number of share reduce at a
fixed rate)==>
Price (P1): 10.64 (Div2)/(.193-.117)=140