Chittenden Enterprises Has 632 Million Shares Outstanding

question 58

Multiple Choice

Chittenden Enterprises has 632 million shares outstanding.It expects earnings at the end of the year to be $940 million.The firm's equity cost of capital is 10%.Chittenden pays out 30% of its earnings in total: 20% paid out as dividends and 10% used to repurchase shares.If Chittenden's earnings are expected to grow at a constant 4% per year,what is Chittenden's share price?

• A)$4.96
• B)$3.36
• C)$7.44
• D)$14.88

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Definitions:

Capital

Refers to financial assets or their financial value, as well as the tangible factors of production that are used to create other goods and services.

After-Tax Cost

The actual cost of an expense or investment after taking into account the effects of taxes.

Debt

An amount of money borrowed by one party from another, under the condition that it is to be paid back at a later date, usually with interest.

Tax Rate

The share of profits or income that individuals or companies must pay to the government as taxes.