Holt Enterprises recently pad a dividend, Do of $3.00. It expects to have noncon

Question

Holt Enterprises recently pad a dividend, Do of $3.00. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 7% thereafter. The n required return is 10%. a. How far away is the horizon date? 's 1. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2 1I. The terminal, or horizon, date is infinity since common stocks do not have a maturity date III. The terminal, or horizon, date is Year O since the value of a common stock is the present value of all future expected dividends at time zero IV. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. V. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2 b. What is the firm's horizon, or continuing, value? Round your answer to two decimal places. Do not round your intermediate calculations c What is the nrm's intrinsic value today, Ao? Round your answer to two decimal places Do not round your intermediate calculations

Explanation / Answer

a) Option I b) Horizon value = D3/(0.10-0.07) = 3*1.21^2*1.07/(0.10-0.07) = $       156.66 c) Intrinsic value = 3*1.21/1.1+3*1.21^2/1.1^2+156.66/1.10^2 = $       136.40

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