Company ABC has 10,000 shares outstanding and the stock price is$100. The company is expected to pay a dividend of $10 per sharenext year and thereafter the dividend is expected to growindefinitely by 6% a year. The company now makes an announcement:It will repurchase shares next year instead of issuing cashdividends. But from year 2 on the payout policy stays the same. (8points) a. What is the expected rate of return on the stock? b. Atwhat price will the company repurchase shares next year? How manyshares will be repurchased? c. After the payout, what is thepercentage ownership of an investor who holds 1% of the sharesbefore the payout and does not sell shares during the repurchase?d. What is the present value of all future dividends to thisinvestor?
