4. Problem 9.04 (non-constant growth valuation)

Holt Enterprises recently paid a dividend, Do, of $3.50. Expect to have non-constant growth of 25% for 2 years followed by a constant rate of 6% there after. The firms required return is 19%.

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 two.

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

III. The terminal, or horizon, date is year zero, since the value of a common stock is the present value of all future expected dividends at times zero.

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

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

b. what is the firms, Horisont, or, continuing, value? Do not round, intermediate calculations. Round your answer to the nearest cent.

$ ?

c. what is the firms intrinsic value today, P^o? Do not round intermediate calculations. Round your answer to the nearest cent.

$ ?