1. Holt Enterprises recently paid a dividend, D0, of $1.75. It expects to have nonconstant growth of 22% for 2 years followed by a constant rate of 7% thereafter. The firm's required return is 14%.

A. How far away is the horizon date?

I. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2

II. The terminal, or horizon, date is infinity since common stocks do not have a maturity date.

III. 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.

IV. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.

V. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.

B. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent.

C. What is the firm's intrinsic value today, answer to the nearest cent.

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2. Farley Inc. has perpetual preferred stock outstanding that sells for $38 a share and pays a dividend of $5.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places.

3. What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 8% of par, and a current market price of (a) $60, (b) $80, (c) $103, and (d) $144? Round your answers to two decimal places.

a.

b.

c.

d.

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4. Earley Corporation issued perpetual preferred stock with a 10% annual dividend. The stock currently yields 6%, and its par value is $100. Round your answers to the nearest cent.

What is the stock's value?

Suppose interest rates rise and pull the preferred stock's yield up to 14%. What is its new market value?

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5. Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 10% per year. If D0 = $6 and rs = 12%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.

6. A stock is expected to pay a dividend of $0.75 at the end of the year (i.e., D1 = $0.75), and it should continue to grow at a constant rate of 5% a year. If its required return is 13%, what is the stock's expected price 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

7. 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 44% per year-during Years 4 and 5; but after Year 5, growth should be a constant 10% per year. If the required return on Computech is 17%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.