Question

Holt Enterprises recently paid a dividend, D0, of $3.75. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $3.75. It expects to have nonconstant growth of 24% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 9%.

  1. How far away is the horizon date?
    1. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero.
    2. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
    3. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.
    4. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.
    5. The terminal, or horizon, date is infinity since common stocks do not have a maturity date.

    -Select-IIIIIIIVVItem 1
  2. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent.

    $  

  3. What is the firm's intrinsic value today,  ^p0 ? Do not round intermediate calculations. Round your answer to the nearest cent.

    $  

Homework Answers

Answer #1

a)

The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.

b)

Year 1 dividend = 3.75 (1 + 24%) = 4.65

Year 2 dividend = 4.65 (1 + 24%) = 5.766

Year 3 dividend = 5.766 (1 + 3%) = 5.93898

Horizon value = D3 / required rate - growth rate

Horizon value = 5.93898 / 0.09 - 0.03

Horizon value = 5.93898 / 0.06

Horizon value = $98.98

c)

Inrinsic value = 4.65 / (1 + 0.09)^1 + 5.766 / (1 + 0.09)^2 + 98.98 / (1 + 0.09)^2

Inrinsic value = $92.43

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Holt Enterprises recently paid a dividend, D0, of $3.75. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $3.75. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 19%. How far away is the horizon date? The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected...
Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of 15% for 2 years followed by a constant rate of 6% thereafter. The firm's required return is 19%. How far away is the horizon date? The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected...
Holt Enterprises recently paid a dividend, D0, of $1.25. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $1.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 11%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The...
Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of 12% for 2 years followed by a constant rate of 9% thereafter. The firm's required return is 18%. How far away is the horizon date? The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. The terminal, or horizon, date is the date when the growth rate...
Holt Enterprises recently paid a dividend, D0, of $2.00. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $2.00. It expects to have nonconstant growth of 22% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 17%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at...
Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 9% thereafter. The firm's required return is 15%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at...
Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 12%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The...
Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of 23% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 16%. How far away is the horizon date? The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected...
Holt Enterprises recently paid a dividend, D0, of $4.00. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $4.00. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 16%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at...
Holt Enterprises recently paid a dividend, D0, of $1.00. It expects to have nonconstant growth of...
Holt Enterprises recently paid a dividend, D0, of $1.00. It expects to have nonconstant growth of 18% for 2 years followed by a constant rate of 9% thereafter. The firm's required return is 10%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The...