Question

Holt Enterprises recently paid a dividend, D₀, of $3.75. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 9% thereafter. The firm's required return is 14%.

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

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

Answer 1

	Required rate=	14.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	3.75	14.00%	4.275		4.275	1.14	3.75
2	4.275	14.00%	4.8735	106.24	111.1155	1.2996	85.49977
	Long term growth rate (given)=	9.00%			Value of Stock =	Sum of discounted value =	89.25

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