In: Finance
You are considering an investment in Justus Corporation's stock,
which is expected to pay a dividend...
You are considering an investment in Justus Corporation's stock,
which is expected to pay a dividend of $2.75 a share at the end of
the year (D1 = $2.75) and has a beta of 0.9. The
risk-free rate is 5.1%, and the market risk premium is 6%. Justus
currently sells for $47.00 a share, and its dividend is expected to
grow at some constant rate, g. Assuming the market is in
equilibrium, what does the market believe will be the stock price
at the end of 3 years? (That is, what is ?) Do not round
intermediate calculations. Round your answer to the nearest
cent.
$
Holt Enterprises recently paid a dividend, D0, of
$4.00. It expects to have nonconstant growth of 24% for 2 years
followed by a constant rate of 9% 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 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.
-Select-IIIIIIIVVItem 1
- 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.
$