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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

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%.

  1. a. How far away is the horizon date?
  2. b. What is the firm’s horizon, or continuing, value?
  3. c. What is the firm’s intrinsic value today, P ^ 0 ?

a.

Summary Introduction

To identify: The horizon date.

Introduction:

Horizon Date: The horizon date is the date after which the growth rate of the dividend is constant.

Explanation

As the company follows non-constant growth rate for 2 years and after 2 years, the comp...

b.

Summary Introduction

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.

Summary Introduction

To compute: The intrinsic value of the firm.

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