Common Stock Value: Variable Growth
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Newman Manufacturing is considering a cash purchase of the stock of Grip Tool. During the year just completed, Grips earned $4.25 par share and paid cash dividends of $2.55 per share. Grips' earnings and dividends are expected to grow at 25% per year for the next 3 years, after which they are expected to grow at 10% per year to infinity. What is the maximum price per share that Newman should pay for Grip if it has a required return of 15% on investment with risk characteristics similar to those of Grips?
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Newman manufacturing is considering a cash purchase of the stock of Grip Tool. During the year just completed, Grips earned $4.25 par share and paid cash dividends of $2.55 per share. Grips' earnings and dividends are expected to grow at 25% per year for the next 3 years, after which they are expected to grow at 10% per year to infinity. What is the maximum price per share that Newman should pay for Grip if it has a required ...
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