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    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%). There are plans to increase the debt ratio of the new subsidiary - the effects of this would be to raise beta to 1.1. What is the per-share value?

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    Risk free rate 5.0%
    Market risk premium 6.0%
    Beta 0.9
    Expected growth 5.0%
    dividend $2.00

    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%). There are plans to increase the debt ratio of the new subsidiary - the effects of this would be to raise beta to 1.1. What is the per-share value?

    © BrainMass Inc. brainmass.com June 3, 2020, 8:01 pm ad1c9bdddf
    https://brainmass.com/business/mergers-and-acquisitions/synergies-enable-dividend-grow-constant-rate-121159

    Solution Preview

    We need to take the post merger values of beta and growth rate to calculate the value of ...

    Solution Summary

    Computations done by hand, step by step. The expert examines the synergies to enable the dividend to grow at a constant rates.

    $2.19

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