eBook Problem Walk-Through

Holt Enterprises recently paid a dividend, D₀, of $3.00. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 6% thereafter. The firm's required return is 17%.

1. How far away is the horizon date?
   1. 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.
   2. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
   3. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.
   4. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.
   5. The terminal, or horizon, date is infinity since common stocks do not have a maturity date

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, ? Do not round intermediate calculations. Round your answer to the nearest cent.

$

Scampini Technologies is expected to generate $50 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 10%, and it has zero nonoperating assets. If Scampini has 50 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent.

Each share of common stock is worth $_________ , according to the corporate valuation model.