The Rufus Corporation Has 125 Million Shares Outstanding and Analysts

question 39

Multiple Choice

The Rufus Corporation has 125 million shares outstanding and analysts expect Rufus to have earnings of $500 million this year.Rufus plans to pay out 40% of its earnings in dividends and they expect to use another 20% of their earnings to repurchase shares.If Rufus' equity cost of capital is 15% and Rufus' earnings are expected to grow at a rate of 3% per year,then the value of a share of Rufus stock is closest to:

• A)$13.35.
• B)$33.50.
• C)$20.00.
• D)$16.00.

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Definitions:

Bank Money Market Account

A savings account that typically offers a higher interest rate in exchange for larger deposit amounts and limited transaction capabilities.