The following information is required to work part a, b, and c.

Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 5% and that the market risk premium is 6%.

A)VALUATION: Van Buren currently expects to pay a year-end dividend of $2.00 a share (D1 = $2.00). Van Burens dividend is expected to grow at a constant rate of 5% a year, and its beta is 0.9. What is the current price of Van Burens stock?

B) MERGER VALUATION: Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $2.00 a share, but 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 subsidiarythe effect of this would be to raise Van Burens beta to 1.1. What is the per-share value of Van Buren to Harrison Corporation?

C) MERGER BID: On the basis of your answers to Problems 21-1 and 21-2, 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?