Common stock value-Variable growth Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $2.92 per share and paid cash dividends of $1.22 per share (Do = $1.22). Grips' earnings and dividends are expected to grow at 30% per year for the next 3 years, after which they are expected to grow 6% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 14% on investments with risk characteristics similar to those of Grips? The maximum price per share that Newman should pay for Grips is $ (Round to the nearest cent.)
Common stock value-Variable growth Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $2.92 per share and paid cash dividends of $1.22 per share (Do = $1.22). Grips' earnings and dividends are expected to grow at 30% per year for the next 3 years, after which they are expected to grow 6% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 14% on investments with risk characteristics similar to those of Grips? The maximum price per share that Newman should pay for Grips is $ (Round to the nearest cent.)
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
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