Question
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.69 per share and paid
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.69 per share and paid cash dividends of $1.99 per share (Do=$1.99). Grips' earnings and dividends are expected to grow at 30% per year for the next three years, after which they are expected to grow at 5% 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?
The maximum price per share that Newman should pay for Grips is $____
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.69 per share and paid cash dividends of $1.99 per share (Do=$1.99). Grips' earnings and dividends are expected to grow at 30% per year for the next three years, after which they are expected to grow at 5% 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?
The maximum price per share that Newman should pay for Grips is $____
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