Question 7 [12 Marks] Harrison Corporation is interested in acquiring Van Buren Corporation Assume that the risk-free rate of interest is 5%, and the market nsk premium is 6% Required 71 (5) 72 Van Buren currently expects to pay a year-end dividend of R2 00 per share (Di= 200) Van Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 09 What is the current price of Van Buren's stock? Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at R2 00 per share, however, synergies will enable the dividend to grow at a constant rate of 7% a year (instead of the current 5%) Harrison also plans to increase the debt ratio of what would be its Van Buren subsidiary, the effect of this would be to raise Van Buren's beta to 11 What is the per-share value of Van Buren to Harrison Corporation? (5) On the basis of your answers to 71 and 72, if Harrison were to acquire Van Buren, what would be the range of possible prices it could bid for each share of Van Buren common stock? (2) 73