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 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.

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Expert Solution

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

jeff jeffy answered 1 year ago

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