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.

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 2 years ago

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

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