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    Merger Valuation of Stock & Beta

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    VALUATION Van Buren currently expects to pay a year-end dividend of $2.00 a share (D1 ¼ $2.00). Van Buren's dividend is expected to grow at a constant rate of 5% a year, and its beta is 0.9. The risk-free rate is 5.6% and the market risk premium is 6%. What is the current price of Van Buren's stock?

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    MERGER VALUATION Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $2.00 a share, but 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 1.1. What is the per-share value of Van Buren to Harrison Corporation?

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    https://brainmass.com/business/mergers-and-acquisitions/merger-valuation-of-stock-beta-273283

    Solution Preview

    Beta measures a stock's volatility; that is the degree to which its price fluctuates in relation to the overall market. Say a company has a beta of 2. This means that it is two times as volatile as the overall market. Let's say we expect the market to ...

    Solution Summary

    The solution computes Merger Valuation of Stock

    $2.19

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