Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the risk-free rate of interest is 4%, and the market risk premium is 5%. 21-1 - VALUATION Visscher currently expects...

Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the risk-free rate of interest is 4%, and the market risk premium is 5%.

21-1 - 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?

21-2 - 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?

21-3 - MERGER BID On the basis of your answers to problems 21-1 and 21-2, if Hastings were to acquire Visscher, what would be the range of possible prices it could bid for each share of Visscher common stock?