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Maynard Steel Finance Discussion

Maynard Steel plans to pay a dividend of $3 this year. The company has an expected earnings growth rate of 4% per year and an equity cost of capital of 10%.

a. Assuming Maynard's dividend payout rate and expected growth rate remains constant, and Maynard does not issue or repurchase shares, estimate Maynard's share price.

b. Suppose Maynard decides to pay a dividend of $1 this year and use the remaining $2 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price.

c. If Maynard maintains the dividend and total payout rate given in part (b), at what rate are
Maynard's dividends and earnings per share expected to grow?

Solution Preview

These can also be solved through the appropriate formulas.

a. Assuming Maynard's dividend payout rate and expected growth rate remains constant, and Maynard does not issue or repurchase shares, estimate Maynard's share price.

= 3 / (10% - 4%) = $50
Formula: dividend / (cost of ...

Solution Summary

This solution calculates the share price and earnings per share. Each calculation is shown and explained.

$2.19