Question
Common stock valueVariable growthNewman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $4.09 per
Common stock
valueVariable
growthNewman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned
$4.09
per share and paid cash dividends of
$2.39
per share
(D0=$2.39).
Grips' earnings and dividends are expected to grow at
25%
per year for the next 3 years, after which they are expected to grow
9%
per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of
16%
on investments with risk characteristics similar to those of Grips?
Question content area bottom
Part 1
The maximum price per share that Newman should pay for Grips is
$enter your response here.
(Round to the nearest cent.)
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