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The image contains three parts of a question related to Maynard Steel’s dividend payout and share repurchases:

### Key Data:
- Dividend payout this year: **$2.88**
- Expected earnings growth rate: **3.7%**
- Equity cost of capital: **10.9%**

### a. Estimating Maynard’s Share Price (No Repurchases):
Assuming the dividend payout rate and growth rate remain constant, and no repurchases occur, we estimate the share price using the Gordon Growth Model (Dividend Discount Model).

\[
P_0 = \frac{D_0 \times (1 + g)}{r - g}
\]

Where:
- $ D_0 = 2.88 $ (current dividend),
- $ g = 0.037 $ (growth rate),
- $ r = 0.109 $ (cost of equity).

Using the formula:

\[
P_0 = \frac{2.88 \times (1 + 0.037)}{0.109 - 0.037} = \frac{2.88 \times 1.037}{0.072}
\]

This gives us:

\[
P_0 \approx 40.00
\]

So, the share price is **$40.00**, which matches the answer in the image.

### b. Share Price After Dividend of $1.02 and Share Repurchase:
If Maynard decides to pay a dividend of $1.02 and repurchases shares with the remaining $1.86 per share, we maintain the total payout rate, which is still **$2.88**.

Since the total payout remains the same, we calculate the price using the same formula, but with $ D_0 = 1.02 $:

\[
P_0 = \frac{1.02 \times (1 + 0.037)}{0.109 - 0.037}
\]

This gives a share price of **$14.72**, which matches the provided solution.

### c. Growth Rate for Dividends and Earnings Per Share:
If the total payout rate remains constant at $2.88 (from part b), and Maynard maintains the repurchase plan, the earnings per share (EPS) and dividends per share growth will be equal to the expected growth rate **3.7%**, but adjusted by the repurchase effect.

We can say:

\[
\text{Growth Rate} = 3.7\%
\]

This is due to the constant payout rate and no further impact beyond repurchases affecting EPS growth.

Would you like more details or further clarification?

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Here are five related questions you might consider:
1. What is the total return for shareholders under this dividend and share repurchase scenario?
2. How does the share price change affect the price-to-earnings (P/E) ratio of Maynard Steel?
3. What happens to the share price if the growth rate changes to 5% instead of 3.7%?
4. How does a change in the equity cost of capital (e.g., 9%) impact the share price calculation?
5. What would the share price be if Maynard Steel eliminated the dividend entirely and focused solely on repurchasing shares?

**Tip**: When analyzing dividend growth models, always remember that small changes in growth rates or the equity cost of capital can significantly impact the calculated share price.

Maynard Steel plans to pay a dividend of $2.88 this year. The company has an expected earnings growth rate of 3.7% per year and an equity cost of capital of 10.9%. 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 $1.02 this year and use the remaining $1.86 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price. c. If Maynard maintains the dividend and total payout rate given in part b, at what rate are Maynard's dividends and earnings per share expected to grow?

Learn how to estimate Maynard Steel's share price using the dividend discount model (Gordon Growth Model) based on a dividend payout of $2.88 and an earnings growth rate of 3.7%. Explore how share repurchases affect the share price and dividend growth rate under a total payout rate strategy.

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