(Non-constant growth stock): ABC Industries (owned by Alvarado, Barahona & Belmonte) spun off its technology firm R3. The management team of Rebidas, Reed, and Rivera enacted dividend payments immediately and just paid an annual dividend of D0 = $1.32 last year. Value Line analysts from the prestigious research firm of Eboli, Segoviano, and Soldo expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%.
What is the best estimate of the stock’s current market value today?
Investigate the term hostile takeover and the difference between a white knight and a white squire. Provide definitions here in your own words.
Suppose a white knight investor firm of Carrillo, DeLuca, and Guzman is interested in purchasing the company in Year 3. What price should this company offer R3? Explain your reasoning.