a. The required return on Craft's stock is

1212%.

(Round to the nearest whole percentage.)

The maximum cash price that Hamlin should pay for each share of Craft is

$66.466.4.

(Round to the nearest cent.)

b. (1) If the dividend growth rate decreases by 2%, the maximum cash price that Hamlin should pay for each share of Craft is

$46.5046.50.

(Round to the nearest cent.)

(2) If the risk premium decreases to

88%,

the required return on Craft's stock is

1111%.

(Round to the nearest whole percentage.)

With a

1111%

required return, the maximum cash price that Hamlin should pay for each share of Craft is

$8383.

(Round to the nearest cent.)

Price is a function of the current dividend,

, and the risk-free rate, and the company-specific

. For Craft, the lowering of the dividend growth rate

increased

reduced

future cash flows resulting in

an increase

a reduction

in share price. The decrease in the risk premium reflected

an increase

a reduction

in risk leading to

an increase

a reduction

in share price.(Select the best answers from the drop-down menus.)