Tim wants your advice on a potential stock purchase. There is excess capital on the balance sheet – and he wants to put

[answerhappygod]

Tim wants your advice on a potential stock purchase. There is
excess capital on the balance sheet – and he wants to put it to
good use. He is excited because he heard that Ginger Corp’s stock
is trading at $75. He notes that Ginger Corp. just paid out
$1.7308M in dividends and repurchased $4.3983M worth of shares.
Ginger Corp. has 1.12M shares outstanding. Total payouts are
expected to grow at an annual rate of 5%. Tim – like the other
investors of Misty Industries – expects a 12% rate of return on
shares. What should Tim do? You recall from your finance class that
you should use the Total Payout model to estimate of the stock
price today. You can assume that all payouts occur annually and
that the next payout will be in exactly one year. Show your work
and clearly state your final answer. (b) Tim thanks you for your
advice. But, thinking about it some more, he asks you if he should
buy or not buy the stock if the stock were currently trading at
$100 instead of $75. What do you advise him? (2 marks)
(c) Tim wonders how things might be different if the payouts
mentioned above did not grow by 5% - but instead were flat. Should
the stock be purchased Assume that the price is still $75. (3
marks)