Question

Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of 19% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 18%.

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

$ _____

b. What is the firm's intrinsic value today, P?0? Round your answer to two decimal places. Do not round your intermediate calculations.

$ _____

Answer 1

a)
Year	Dividend
1	$3 x (1+19%)^1	$3.57
2	$3 x (1+19%)^2	$4.25
3	$4.25 x (1+3%)	$4.38
Horizon Value = D3/(r - g)
Horizon Value = $4.38/(18% - 3%)	$29.17
b)
Year	Dividend		PV @ 18%	Present Value
1	$3 x (1+19%)^1	$3.57	0.8475	$3.03
2	$3 x (1+19%)^2 + $29.17	$33.42	0.7182	$24.00
Intrinsic Value				$27.03