Determining the price of company shares

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Norah Inc. has just paid an annual dividend of €1.99. Analysts forecast a 6% per year increase in company's profits over the next four years. Beyond that, Norah Inc.'s profits are expected to grow at the industry average rate of 4.6% per year.

a) If Norah Inc.'s cost of equity is 8.2% per year and its dividend payout ratio remains constant, at what price should Norah Inc.'s shares be sold using the dividend discount model?

b) If, while maintaining a constant total payout rate, the CFO ultimately decided to pay out 50% of the earnings as a dividend and use the remaining 50% on share repurchases, what would Norah's share price be?

c) What is, in this case, the most relevant / direct discount rate to use when determining the price of this company's shares?

Reference no: EM133003004

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