Question
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.83 per share and
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.83 per share and paid cash dividends of $2.13 per share (Do = $2.13). Grips' earnings and dividends are expected to grow at 40% 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 16% 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.)
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Principles Of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter
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