Question
Common stock valueVariable growthNewman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $2.76 per
Common stock valueVariable growthNewman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $2.76 per share and paid cash dividends of $1.06 per share (D0=$1.06). 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 10% on investments with risk characteristics similar to those of Grips?
The maximum price per share that Newman should pay for Grips is $
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