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 $4.03 per share and paid cash dividends of $2.33 per share (Do = $2.33). Grips' earnings and dividends are expected to grow at 20% 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 11% 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 $4.03 per share and paid cash dividends of $2.33 per share (Do = $2.33). Grips' earnings and dividends are expected to grow at 20% 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 11% 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.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 16P

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