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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?

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Solution Summary

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

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

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