Common stock value-Variable growth Newman Manufacturing is considering a cash purchase of the stock of Grips...

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 $3.69 per share and paid cash dividends of $1.99 per share (Do-$1.99). Grips' earnings and dividends are expected to grow at 35% per year for the next 3 years, after which they are expected to grow 9% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 15% on investments with risk characteristics similar to those of Grips? 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 $3.69 per share and paid cash dividends of $1.99 per share (Do-$1.99). Grips' earnings and dividends are expected to grow at 35% per year for the next 3 years, after which they are expected to grow 9% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 15% on investments with risk characteristics similar to those of Grips?