Question

H.O Company just paid a dividend of $1.25 (??0=$1.25). It expects to have nonconstant growth of...

H.O Company just paid a dividend of $1.25 (??0=$1.25). It expects to have nonconstant

growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm’s

require rate of return is 10%

(1) Draw a time line for the future cash flows from this stock.

(2) What is the firm’s horizon value?

(3) What is the firm’s intrinsic value today?

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