Common stock value-Variable growth Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.55 per share and paid cash dividends of $1.85 per share (Do=$1.85). Grips' earnings and dividends are expected to grow at 35% per year for the next 3 years, after which they are expected to grow 8% 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? www. The maximum price per share that Newman should pay for Grips is $

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Common stock value-Variable growth Newman Manufacturing is
considering a cash purchase of the stock of Grips Tool. During the year
just completed, Grips earned $3.55 per share and paid cash dividends of
$1.85 per share (Do= $1.85). Grips' earnings and dividends are expected to
= $185) Grip
grow at 35% per year for the next 3 years, after which they are expected to
grow 8% 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?
BAKING
The maximum price per share that Newman should pay for Grips is $
(Round to the nearest cent.)
Transcribed Image Text:Common stock value-Variable growth Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.55 per share and paid cash dividends of $1.85 per share (Do= $1.85). Grips' earnings and dividends are expected to = $185) Grip grow at 35% per year for the next 3 years, after which they are expected to grow 8% 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? BAKING The maximum price per share that Newman should pay for Grips is $ (Round to the nearest cent.)
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