In: Finance
Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have nonconstant growth of 22% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 20%.
What is the firm's intrinsic value today? Do not round intermediate calculations. Round your answer to the nearest cent.
we have to use dividend discount model to compute the terminal value | |||||||
Price today is the present value of future cash flow | |||||||
i | ii | iii=i+ii | iv | v | vi=iv*v | ||
year | Dividend | Terminal value | total cash flow | PVIF @ 20% | present value | ||
1 | 2.75 | 2.75 | 0.833333333 | 2.29 | |||
2 | 3.35 | 20.29 | 23.64 | 0.694444444 | 16.42 | ||
18.70 | |||||||
Terminal value = Divided in year 3/(required rate - growth rate) | |||||||
3.35*103%/(20%-3%) | |||||||
20.29 | |||||||
Price today = | $ 18.70 | ||||||
Ans = | $ 18.70 | ||||||