On the basis of your answers to Problems 21-1 and 21-2, if Harrison were to acqu

Question

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?

21-1 Van Buren currently ex[pects to pay a year end dividend of $2.00 a share. 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 Buren's stock?

21-2 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 plans to increase the debt ratioo of what would be the 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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