Harrison Corporation is interested in acquiring Van Buren Corporation Assume that the risk-free rate of interest is 5%, and the market risk premium is 6% Required 71 Van Buren currently expects to pay a year-end dividend of R2 00 per share (Di = 2 00) Van Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 0 9 What is the current price of Van Buren's stock? 72 Harrson 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? 73 On the basıs of your answers to 7 1 and 72, d Harnson were to acquire Van Buren, what would be the range of possible prces it could bıd for each share of Van Buren common stock?
Harrison Corporation is interested in acquiring Van Buren Corporation Assume that the risk-free rate of interest is 5%, and the market risk premium is 6% Required 71 Van Buren currently expects to pay a year-end dividend of R2 00 per share (Di = 2 00) Van Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 0 9 What is the current price of Van Buren's stock? 72 Harrson 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? 73 On the basıs of your answers to 7 1 and 72, d Harnson were to acquire Van Buren, what would be the range of possible prces it could bıd for each share of Van Buren common stock?
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
Section: Chapter Questions
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Transcribed Image Text:Harrison Corporation is interested in acquiring Van Buren Corporation Assume that the risk-free rate of
interest is 5%, and the market risk premium is 6%
Required
71 Van Buren currently expects to pay a year-end dividend of R2 00 per share (Di = 2 00) Van
Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 0 9 What
is the current price of Van Buren's stock?
72
Harrson 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?
73 On the basıs of your answers to 7 1 and 72, d Harnson were to acquire Van Buren, what would
be the range of possible prces it could bıd for each share of Van Buren common stock?
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