1. Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Write a short essay describing why or why not.
2. If the required rate of return is 14%, what should be the price of a constant growth stock that has just paid a dividend of $1.00 with a dividend growth rate of 4.50%?