Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 19%. What is the intrinsic value today?
D1=(3.25*1.2)=3.9
D2=(3.9*1.2)=4.68
Value after year 2=(D2*Growth rate)/(Required rate-Growth rate)
=(4.68*1.05)/(0.19-0.05)
=35.1
Hence intrinsic value today=Future dividend and value*Present value of discounting factor(rate%,time period)
=3.9/1.19+4.68/1.19^2+35.1/1.19^2
=$31.37(Approx).
Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of...
Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 19%. What is the horizon or terminal value?
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