Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 17% for 2 years followed by a constant rate of 10% thereafter. The firm's required return is 12%. 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. 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

Solutions

Expert Solution

Question 1:

How far away is the horizon date?

The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.

Question 2:

D0 = Current Dividend = $3.25

g1 = grwoth rate = 17%

g2 = growth rate = 10%

r = required rate = 12%

D1 = Dividend in Year 1 = D0 * (1+g1) = $3.25 * (1+17%) = $3.8025

D2 = Dividend in Year 2 = D1 * (1+g1) = $3.8025 * (1+17%) = $4.448925

D3 = Dividend in Year 3 = D2 * (1+g2) = $4.448925 * (1+10%) = $4.8938175

Horizon Value = D3 / (r - g2) = $4.8938175 / (12%-10%) = $244.690875

Therefore, Horizon or Continuing value is $244.69

Question 3:

Firm's Intrinsic Value = [D1/ (1+r)^1] + [D2 / (1+r)^2] + [Horizon Value / (1+r)^2]

= [$3.8025 / (1+12%)^2] + [$4.448925 / (1+12%)^2] + [$244.690875 / (1+12%)^2]

= [$3.8025 / 1.12] + [$4.448925 / 1.2544] + [$244.690875 / 1.2544]

= $3.395089286 + $3.546655772 + $195.0660674

= $202.0078125

Therefore, Firm's Intrinsic Value of stock today is $202.01

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 22% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 13%. How far away is the horizon date? 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...

Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 15% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 15%. How far away is the horizon date? The terminal, or horizon, the date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, the date is infinity since common stocks do not have a maturity...

NONCONSTANT GROWTH VALUATION Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have...

NONCONSTANT GROWTH VALUATION Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 19% for 2 years followed by a constant rate of 7% thereafter. The firm's required return is 19%. 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...

Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have nonconstant growth of...

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 15%. How far away is the horizon 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...

Holt Enterprises recently paid a dividend, D0, of $1.50. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $1.50. It expects to have nonconstant growth of 15% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 16%. How far away is the horizon 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...

Holt Enterprises recently paid a dividend, D0, of $3.50. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $3.50. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 14%. How far away is the horizon date? 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...

Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of 13% for 2 years followed by a constant rate of 10% thereafter. The firm's required return is 19%. What is the firm's horizon, or continuing, value? Round your answer to two decimal places. Do not round your intermediate calculations. What is the firm's intrinsic value today, P̂0? Round your answer to two decimal places. Do not round your intermediate calculations.

Holt Enterprises recently paid a dividend, D0, of $1.25. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $1.25. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 6% thereafter. The firm's required return is 16%. How far away is the horizon date? 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...

Holt Enterprises recently paid a dividend, D0, of $1.50. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $1.50. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 17%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The...

Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of...

Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 7% thereafter. The firm's required return is 8%. How far away is the horizon date? 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...

Subjects