Milton Corporation Recently Paid a Dividend of $1

Multiple Choice

Milton Corporation recently paid a dividend of $1.70 per share, is currently expected to grow at a constant rate of 5%, and has a required return of 11%. Milton Corporation has been approached to buy a new company. Milton estimates if it buys the company, their constant growth rate would increase to 6.5%, but the firm would also be riskier, therefore increasing the required return of the company to 12%. Should Milton go ahead with the purchase of the new company?

A) Yes, because the value of the Milton Co. should increase $3.17 per share.
B) Yes, because the value of the Milton Co. should increase $2.56 per share.
C) Yes, because the value of the Milton Co. should increase $4..59 per share.
D) No, because the value of the Milton Co. should decrease $3.17 per share.