Problem:
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.
Required:
Question: 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?
A) $22.40
B) $56.00
C) $93.33
D) $140.00
Note: Show supporting computations in good form.