Acme Corporation is considering a cash purchase of the stock of BoxPak Corporation. During the year...

  

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Acme Corporation is considering a cash purchase of the stock of BoxPak Corporation. During the year just completed, BoxPak earned $3.64 per share and paid cash dividends of $1.94 per share. (Do-$1.94). BoxPak's earnings and dividends are expected to grow at 30% per year for the next 3 years, after which they are expected to grow 7% per year to infinity. What is the maximum price per share that Acme should pay for BoxPak if it has a required return of 11% on investments with risk characteristics similar to those of BoxPak? (6 marks) [Total: 12 marks] N.B: For YTM, round to three decimal places and for maximum share price, round to the nearest cent. Acme Corporation is considering a cash purchase of the stock of BoxPak Corporation. During the year just completed, BoxPak earned $3.64 per share and paid cash dividends of $1.94 per share. (Do-$1.94). BoxPak's earnings and dividends are expected to grow at 30% per year for the next 3 years, after which they are expected to grow 7% per year to infinity. What is the maximum price per share that Acme should pay for BoxPak if it has a required return of 11% on investments with risk characteristics similar to those of BoxPak? (6 marks) [Total: 12 marks] N.B: For YTM, round to three decimal places and for maximum share price, round to the nearest cent.

Answer rating: 100% (QA)

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