What is the maximum price per share that Newman should pay for Grips if it has a required return of 13​% on investments with risk characteristics similar to tho

Question

Newman manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.43 per share and paid cash dividends of $1.73 per share (D0=$1.73). Grips' earnings and dividends are expected to grow at 40% per year for the next 3 years, after which they are expected to grow 5% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 13% on investments with risk characteristics similar to those of Grips? 

Answer 1

D1 = 1.56(1+.25) =1.95

D2= 1.95(1+.25) =2.4375

D3 = 2.4375(1+.25)= 3.0469

Terminal value in year3 = 3.0469(1+.08)/(.13-.08) = 3.0469*1.08/.05 = $ 65.8130

Total cash flow for year3 = 3.0469+65.8130 = 68.8599

price= [PVF 13%,1* D1]+ [PVF 13%,2* D2]+ [PVF 13%,3*CF]

= [.88496*1.95]+[.78315*2.4375 ]+[.69305*68.8599]

= 1.7257+ 1.9089+ 47.7234

= $51.36