Essay Problem
1) VALUATION Visscher currently expects to pay a year-end dividend of $1.99 a share (D1 = $1.99). Visscher's dividend is expected to grow at a constant rate of 5% a year, and its beta is 0.8. What is the current price of Visscher's stock?
2) MERGER VALUATION 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?
3) MERGER BID On the basis of your answers to problems 1) and 2), if Hastings were to acquire Visscher, what would be the range of possible prices it could bid for each share of Visscher common stock?
The response should include a reference list. Using one-inch margins, Times New Roman 12 pnt font, double-space and APA style of writing and citations.