Question

Holt Enterprises recently paid a dividend, D0, of $1.50. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $1.50. It expects to have nonconstant growth of 12% for 2 years followed by a constant rate of 6% thereafter. The firm's required return is 8%.

What is the firm's horizon, or continuing, value? Round your answer to two decimal places. Do not round your intermediate calculations.

What is the firm's intrinsic value today, P0? Round your answer to two decimal places. Do not round your intermediate calculations.

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Answer #1
Required rate= 8.00%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 1.5 12.00% 1.68 1.68 1.08 1.5556
2 1.68 12.00% 1.8816 99.73 101.6066 1.1664 87.11128
Long term growth rate (given)= 6.00% Value of Stock = Sum of discounted value = 88.67
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 2 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor
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