Risk-free rate of interest-what is the per-share value

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Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 5% and the market risk premium is 7%.

Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $2.25 a share, but synergies will enable the dividend to grow at a constant rate of 9% 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 1.4. What is the per-share value of Van Buren to Harrison Corporation? Round your answer to the nearest cent.

Reference no: EM13940143

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