Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfreerate of interest is 4%, and the market risk premium is 5%. Hastings estimates that if it acquires Visscher, the year-end dividendwill remain at $1.99 a share, but synergies will enable the dividend to grow at a constantrate of 7% a year (instead of the current 5%). Hastings also plans to increase the debt ratioof what would be its Visscher subsidiary; the effect of this would be to raise Visscher’s betato 1.05. What is the per-share value of Visscher to Hastings Corporation?
Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfreerate of interest is 4%, and the market risk premium is 5%. Hastings estimates that if it acquires Visscher, the year-end dividendwill remain at $1.99 a share, but synergies will enable the dividend to grow at a constantrate of 7% a year (instead of the current 5%). Hastings also plans to increase the debt ratioof what would be its Visscher subsidiary; the effect of this would be to raise Visscher’s betato 1.05. What is the per-share value of Visscher to Hastings Corporation?
Chapter23: Corporate Restructuring
Section: Chapter Questions
Problem 10P
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Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfree
rate of interest is 4%, and the market risk premium is 5%.
Hastings estimates that if it acquires Visscher, the year-end dividend
will remain at $1.99 a share, but synergies will enable the dividend to grow at a constant
rate of 7% a year (instead of the current 5%). Hastings also plans to increase the debt ratio
of what would be its Visscher subsidiary; the effect of this would be to raise Visscher’s beta
to 1.05. What is the per-share value of Visscher to Hastings Corporation?
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