Holt Enterprises recently paid a dividend, D0, of $2.75. It expects to have nonc

Question

Holt Enterprises recently paid a dividend, D0, of $2.75. 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 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 dividends at time zero. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. 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 the end of Year 2.

Explanation / Answer

Terminal or horizon date is a date when the growth rate becomes constant. Since growth rate becomes constant after year 2, therefore the terminal or horizon date will the end of year2.

Hence Terminal date is end of year 2.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.