Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
NONCONSTANT GROWTH VALUATION Holt Enterprises recently paid a dividend, D0, of $2.75. It expects to have nonconstant growth of 18% for 2 years followed by a constant rate of 6% thereafter. The firm’s required return is 12%.
- a. How far away is the horizon date?
- b. What is the firm’s horizon, or continuing, value?
- c. What is the firm’s intrinsic value today,
a.
To identify: The horizon date.
Introduction:
Horizon Date: The horizon date is the date after which the growth rate of the dividend is constant.
As the company follows non-constant growth rate for 2 years and after 2 years, the comp...
b.
To compute: The horizon value of the firm.
Introduction:
Horizon Value: Horizon value is the value of the expected dividend that will be received after the horizon date.
c.
To compute: The intrinsic value of the firm.
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