Common stock

valuelong dashVariable

growthNewman manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned

$3.63

per share and paid cash dividends of

$1.93

per share

(D0equals=$1.93).

Grips' earnings and dividends are expected to grow at

40%

per year for the next 3 years, after which they are expected to grow

7%

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?