Problem:
Harrison estimates if it acquires Van Buren, the year end dividend will remain at $2.00 a share but synergies will enable the dividend to grow at a constant rate of 7% a year (instead of the current 5%) Harrison also plans to increase the debt ratio of what would be its Van Buren subsidiary - the effect of this would be to rais Van Buren's beta to 1.1.
Required:
Question: What is the per share value of Van Buren to Harrison Corporation?
Note: Provide specific examples to support your answers.