Question 7 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 Van Buren currently expects to pay a year-end dividend of R2 00 per share (D, = 2 00) Van Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 09 What 71 is the current price of Van Buren's stock? 72 Harrıson estimates that if it acquires Van Buren, the year-end dividend will remain at R2 00 per share, however, synergies will enable the dıvidend to grow at a constant rate of 7% a vear (ınstead of the current 5%) Harrison also plans to increase the debt ratio of what would be its Van Buren subsıdiary, the effect of this would be to raise Van Buren's beta to 1 1 What is the per-share value of Van Buren to Harrison Corporation? 73 On the basıs of your answers to 71 and 7 2, f Harnson were to acqure Van Buren, what would be the range of possible prices it could bid for each share of Van Buren common stock?
Question 7 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 Van Buren currently expects to pay a year-end dividend of R2 00 per share (D, = 2 00) Van Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 09 What 71 is the current price of Van Buren's stock? 72 Harrıson estimates that if it acquires Van Buren, the year-end dividend will remain at R2 00 per share, however, synergies will enable the dıvidend to grow at a constant rate of 7% a vear (ınstead of the current 5%) Harrison also plans to increase the debt ratio of what would be its Van Buren subsıdiary, the effect of this would be to raise Van Buren's beta to 1 1 What is the per-share value of Van Buren to Harrison Corporation? 73 On the basıs of your answers to 71 and 7 2, f Harnson were to acqure Van Buren, what would be the range of possible prices it could bid 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:Question 7
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
Van Buren currently expects to pay a year-end dividend of R2 00 per share (D, = 2 00) Van
Buren's dividend is expected to grow at a constant rate of 5% per year, and its beta is 09 What
71
is the current price of Van Buren's stock?
72
Harrıson estimates that if it acquires Van Buren, the year-end dividend will remain at R2 00 per
share, however, synergies will enable the dıvidend to grow at a constant rate of 7% a vear
(ınstead of the current 5%) Harrison also plans to increase the debt ratio of what would be its
Van Buren subsıdiary, the effect of this would be to raise Van Buren's beta to 1 1 What is the
per-share value of Van Buren to Harrison Corporation?
73
On the basıs of your answers to 71 and 7 2, f Harnson were to acqure Van Buren, what would
be the range of possible prices it could bid for each share of Van Buren common stock?
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