Share Price Question, Please help :)

[kg000]

I have been having a lot of trouble with this one if anyone can help me out:

Sultan Services has 1.2 million shares outstanding. It expects earnings at the end of the year of $5.6 million. Sultan pays out 60% of its earnings in total - 40% paid out as dividends and 20% used to repurchase shares. If Sultan's earnings are expected to grow by 7% per year, these payout rates do not change, and Sultan's equity cost of capital is 9%, what is Sultan's share price?

 

[stapel]

Maybe I'm missing something, but isn't the share price the price at which shares of the stock are currently trading on the markets?

 

[JeffM]

Maybe I'm missing something, but isn't the share price the price at which shares of the stock are currently trading on the markets?

I suspect the problem requires using some model (probably some modified version of the Gordon model that accounts for at least stock repurchase programs) that predicts the equilibrium price of the stock. I am willing to guess to give answers to students in beginning algebra, but advanced students should be expected to explain what model they are working with.