Question
A) Hart Enterprises just paid its annual dividend of $1.25 to its common shareholders. It expects dividends to grow at an annual rate of 20%
A)
Hart Enterprises just paid its annual dividend of $1.25 to its common shareholders. It expects dividends to grow at an annual rate of 20% for the next 2 years, followed by a constant rate of 5% thereafter. The required return on Hart common stock is 10%. (Please use at least four decimal places when estimating future dividends.)
What is the horizon value of Harts common stock? Note this will be the estimated value 2 years from today (when the constant growth of 5% begins).
What is the intrinsic value today, V0, of Harts common stock?
B)
Denzell Company just paid its annual dividend of $2.80. You expect these dividends to grow at an annual rate of 20% for the next 2 years, followed by 12% for 3 years, and then at a constant rate of 6% per year indefinitely. The required return on Denzell common stock is 10%. Compute the value of Denzell common stock. (Please use four decimal places when estimating future dividends.)
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