Explain van buren common stock

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1) Van Buren currently expects to pay a year-end divident of $2.00 a share (D1= $2.00). Van Buren's dividend is expected to grow at a constant rate of 5% a year, and its beta is 0.9. What is the current price of Van Burens stock?

2)Harrison estimates that if it acquires Van Buren, the year-enddividend will remain at $2.00 a share, but synergies will enablethe dividend to grow at a constant rate of 7 percent a year(instead of the current 5 percent). Harrison also plans to increasethe debt ratio of what would be its Van Buren subsidiary-the effectof this would be to raise Van Buren's beta to 1.1. What isthe per-share of Van Buren to Harrison Corporation?

3) On the basis of your answers to Problems 21-1 and 21-2, if Harrison were to acquire Van Buren what would be the range of possible prices it could bid for each share of Van Buren common stock?

Reference no: EM13215626

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