Problem
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed. Grips earned $2.97 per share and paid cash dividends of $1.27 per share (D_0=$1.27). Grips' earnings and dividends are expected to grow at 30% per year for the next 3 years, after which they are expected to grow 8% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return on 11% on investments with risk characteristics similar to those of Grips?