Question
In: Finance
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.
Solutions
Expert Solution
D1=(3*1.13)=3.39
D2=(3.39*1.13)=3.8307
Value after year 2=(D2*Growth rate)/(Required return-Growth rate)
=(3.8307*1.1)/(0.19-0.1)
=$46.8196667(Approx)
Hence horizon value=$46.82(Approx)
Intrinsic value=Future dividend and value*Present value of discounting factor(rate%,time period)
=3.39/1.19+3.8307/1.19^2+46.8196667/1.19^2
=$38.62(Approx)
jeff jeffy answered 2 years agoRelated Solutions
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