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NONCONSTANT GROWTH VALUATION Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have...

NONCONSTANT GROWTH VALUATION

Holt Enterprises recently paid a dividend, D0, of $2.25. 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 16%.

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

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Answer #1

Horizon value, also known as terminal value, is the present value of all constant growing dividends during the constant growth phase.

D0 = $2.25

D1 = $2.25 * (1 + 12%) = $2.52

D2 = $2.52 * (1 + 12%) = $2.82

D3 = $2.82 * (1 + 6%) = $2.9918

Horizon value = $29.92

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