1 Holt Enterprises recently paid a dividend, D 0 , of $3 25 It expects to have nonconstant growth of 19 for 2 years followed by a constant rate of 9 thereafter The firm's required return is 14 How far away is the horizon date The terminal, or horizon, date is the date when the growth rate becomes constant This occurs at the beginning of Year 2 The terminal, or horizon, date is the date when the growth rate becomes constant This occurs at the end of Year 2 The terminal, or horizon, date is infinity since common stocks do not have a maturity date The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero The terminal, or horizon, date is the date when the growth rate becomes nonconstant This occurs at time zero Select IIIIIIIVVItem 1 What is the firm's horizon, or continuing, value Round your answer to two decimal places Do not round your intermediate calculations $ What is the firm's intrinsic value today, P 0 Round your answer to two decimal places Do not round your intermediate calculations $ 2 Computech Corporation is expanding rapidly and currently needs to retain all of its earnings hence, it does not pay dividends However, investors expect Computech to begin paying dividends, beginning with a dividend of $2 00 coming 3 years from today The dividend should grow rapidly at a rate of 36 per year during Years 4 and 5 but after Year 5, growth should be a constant 7 per year If the required return on Computech is 13 , what is the value of the stock today Round your answer to the nearest cent Do not round your intermediate calculations $ 3 Your broker offers to sell you some shares of Bahnsen Co common stock that paid a dividend of $1 75 yesterday Bahnsen's dividend is expected to grow at 5 per year for the next 3 years If you buy the stock, you plan to hold it for 3 years and then sell it The appropriate discount rate is 10 Find the expected dividend for each of the next 3 years that is, calculate D 1 , D 2 , and D 3 Note that D 0 $1 75 Round your answer to the nearest cent D 1 $ D 2 $ D 3 $ Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream that is, calculate the PVs of D 1 , D 2 , and D 3 , and then sum these PVs Round your answer to the nearest cent Do not round your intermediate calculations $ You expect the price of the stock 3 years from now to be $42 54 that is, you expect to equal $42 54 Discounted at a 10 rate, what is the present value of this expected future stock price In other words, calculate the PV of $42 54 Round your answer to the nearest cent Do not round your intermediate calculations $ If you plan to buy the stock, hold it for 3 years, and then sell it for $42 54, what is the most you should pay for it today Round your answer to the nearest cent Do not round your intermediate calculations $ Use equation below to calculate the present value of this stock Assume that g 5 and that it is constant Do not round intermediate calculations Round your answer to the nearest cent $ Is the value of this stock dependent upon how long you plan to hold it In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, Yes The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future No The value of the stock is not dependent upon the holding period The value calculated in parts a through d is the value for a 3 year holding period It is equal to the value calculated in part e Any other holding period would produce the same value of Yes The value of the stock is dependent upon the holding period The value calculated in parts a through d is the value for a 3 year holding period It is not equal to the value calculated in part e Any other holding period would produce a different value of Yes The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends No The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future Select IIIIIIIVVItem 8

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1. Holt Enterprises recently paid a dividend, D 0 , of $3.25. It expects to have nonconstant growth of 19% for 2 years followed by

1. Holt Enterprises recently paid a dividend, D₀, of $3.25. It expects to have nonconstant growth of 19% for 2 years followed by a constant rate of 9% thereafter. The firm's required return is 14%.

How far away is the horizon date?
1. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.
2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.
3. The terminal, or horizon, date is infinity since common stocks do not have a maturity date.
4. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero.
5. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
-Select-IIIIIIIVVItem 1
What is the firm's horizon, or continuing, value? Round your answer to two decimal places. Do not round your intermediate calculations. $
What is the firm's intrinsic value today, P₀? Round your answer to two decimal places. Do not round your intermediate calculations. $

2. Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $2.00 coming 3 years from today. The dividend should grow rapidly-at a rate of 36% per year-during Years 4 and 5; but after Year 5, growth should be a constant 7% per year. If the required return on Computech is 13%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate calculations. $_____

3. Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $1.75 yesterday. Bahnsen's dividend is expected to grow at 5% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 10%.

Find the expected dividend for each of the next 3 years; that is, calculate D₁, D₂, and D₃. Note that D₀ = $1.75. Round your answer to the nearest cent. D₁ = $ D₂ = $ D₃ = $
Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PVs of D₁, D₂, and D₃, and then sum these PVs. Round your answer to the nearest cent. Do not round your intermediate calculations. $
You expect the price of the stock 3 years from now to be $42.54; that is, you expect to equal $42.54. Discounted at a 10% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $42.54. Round your answer to the nearest cent. Do not round your intermediate calculations. $
If you plan to buy the stock, hold it for 3 years, and then sell it for $42.54, what is the most you should pay for it today? Round your answer to the nearest cent. Do not round your intermediate calculations. $
Use equation below to calculate the present value of this stock. Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent. $
Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, ?
1. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.
2. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period would produce the same value of .
3. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period would produce a different value of .
4. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
5. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
-Select-IIIIIIIVVItem 8