Answer to (a)
The answer is option (II).The terminal or horizon date is the date that occurs when the growth rate becomes constant. This occurs at the end of year 2.
Answer to (b)
D0 = $1.75
D1 = (D0*(1+g1) ; $1.75*1.12 = $1.96
D2 = (D1*(1+g1) ; $1.96*1.12 = $2.20
D3 = (D2*(1+g0) : $2.20*1.09 = $2.40, Here g1 refers to
non-constant growth rate and g0 indicates constant growth rate.
Horizon Value also represented as P, In this question it is represented as P2
Hence, P2 = D3 / (r - g)
Here, D3 = $2.40, required return, r = 12% and constant growth
rate, g = 9%
Horizon Value, P2 = $2.40 / (0.12 - 0.09)
Therefore the Horizon Value i.e. P2 = $80
Answer to (c)
The intrinsic value is represented as "P0"
P0 = D0/(1+r)^n + D1/(1+r)^n+ P2/(1+r)^n
P0 = $1.96/1.12 + $2.20/1.12^2 + $80/1.12^2
P0 = $1.75+$1.76+$45.45
Therefore the intrinsic value i.e. P0 = $48.96
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