Maynard Steel plans to pay a dividend of $2 87 this year. The company has an expected earnings growth rate of 4 1% per year and an equity cost of capital of 10 5% a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price b. Suppose Maynard decides to pay a dividend of $0.93 this year and use the remaining $1 94 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price

### Part (a)

To estimate Maynard's share price assuming a constant dividend payout rate and expected growth rate, we use the Dividend Discount Model (DDM). The formula is:

\[ P_0 = \frac{D_1}{r - g} \]

where:
- $ P_0 $ is the current share price
- $ D_1 $ is the dividend expected next year
- $ r $ is the equity cost of capital
- $ g $ is the growth rate of dividends

Given:
- Dividend $ D_0 $ = $2.87
- Growth rate $ g $ = 4.1% = 0.041
- Equity cost of capital $ r $ = 10.5% = 0.105

First, calculate $ D_1 $:

\[ D_1 = D_0 \times (1 + g) \]
\[ D_1 = 2.87 \times 1.041 \]
\[ D_1 = 2.98767 \]

Now, apply the DDM formula:

\[ P_0 = \frac{2.98767}{0.105 - 0.041} \]
\[ P_0 = \frac{2.98767}{0.064} \]
\[ P_0 \approx 46.68 \]

Therefore, the estimated share price of Maynard Steel is approximately $46.68.

### Part (b)

If Maynard decides to pay a dividend of $0.93 this year and use the remaining $1.94 per share to repurchase shares, the total payout rate remains the same. The Dividend Discount Model can be adjusted to reflect the share repurchase by considering the total payout rate, which includes both dividends and share repurchases.

In this case, the total payout is still $2.87 per share. The repurchase yield is the amount spent on repurchases divided by the current share price, and the dividend yield is the dividend divided by the current share price.

Let's denote:
- Dividend $ D = 0.93 $
- Repurchase amount per share $ R = 1.94 $

Since the total payout rate (dividends plus repurchases) remains constant, we can use the total payout model:

\[ P_0 = \frac{D + R}{r - g} \]

Given:
- Total payout $ D + R = 0.93 + 1.94 = 2.87 $
- Growth rate $ g = 4.1\% = 0.041 $
- Equity cost of capital $ r = 10.5\% = 0.105 $

Apply the total payout model:

\[ P_0 = \frac{2.87}{0.105 - 0.041} \]
\[ P_0 = \frac{2.87}{0.064} \]
\[ P_0 \approx 44.84 \]

Therefore, the estimated share price of Maynard Steel, assuming the total payout rate remains constant with $0.93 paid as a dividend and $1.94 used for share repurchases, is approximately $44.84.

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### Additional Questions:
1. How does the share repurchase affect the earnings per share (EPS) of a company?
2. What are the implications of a lower dividend payout and higher share repurchase for shareholders?
3. How does the Dividend Discount Model change if the growth rate of earnings varies over time?
4. What are the advantages and disadvantages of share repurchase programs for a company?
5. How can changes in the equity cost of capital impact the share price?
6. What other models can be used to estimate the share price of a company?
7. How do market conditions influence the effectiveness of share repurchase programs?
8. What are the tax implications for investors when a company repurchases shares instead of paying dividends?

### Tip:
When analyzing changes in a company's dividend policy, consider both the immediate financial effects and the long-term strategic implications, such as potential impacts on shareholder value and market perception.

Learn how to estimate Maynard Steel's share price using the Dividend Discount Model and considering share repurchases. Explore scenarios with different dividend payouts and their impacts on shareholder value. Suitable for advanced finance analysis.

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