Non Constant Growth valuation

Question

Question

Non Constant Growth valuation

Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have non-constant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 8%. What is the firm's intrinsic value today?

finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

Given for Hart Enterprises,

recent dividend P0 = $1.25

non-constant growth of 20% for 2 years

So, D1 = D0/1.2 = 1.25*1.2 = $1.5

D2 = D1*1.2 = $1.5*1.2 = $1.8

thereafter growth rate g = 5%

Firm's required return Ke = 8%

So, stock price at year 2 using constant dividend growth rate is

P2 = D2*(1+g)/(Ke-g) = 1.8*1.05/(0.08-0.05) = $63

intrinsic value of stock today is sum of PV of dividends and P2 discounted at Ke

So, intrinsic value P0 = D1/(1+Ke) + D2/(1+Ke)^2 + P2/(1+Ke)^2

P0 = 1.5/1.08 + 1.8/1.08^2 + 63/1.08^2 = $56.94

answered by: DoodleNyc

Add a comment

Answer 2

Similar Homework Help Questions

Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have non-constant growth of...

Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have non-constant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 8%. What is the firm's intrinsic value today?
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 intrinsic value today?
Nonconstant growth valuation Hart Enterprises recently paid a dividend, D0, of $3.75. It expects to have...

Nonconstant growth valuation Hart Enterprises recently paid a dividend, D0, of $3.75. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 20%. b. What is the firm's horizon, or continuing, value? Round your answer to two decimal places. c. What is the firm's intrinsic value today?

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?
Solar Corp recently paid a dividend of $1 per share. It expects to have non-constant growth...

Solar Corp recently paid a dividend of $1 per share. It expects to have non-constant growth of 25% a year for 3 years followed by a constant growth rate of 5% a year thereafter. The stock’s required rate of return is 12%. What is the stock’s value at the horizon date (when it begins constant growth)? What is the stock’s intrinsic value today?
Soul Enterprises recently paid a dividend, D0, of $1. It expects to have non constant growth...

Soul Enterprises recently paid a dividend, D0, of $1. It expects to have non constant growth of 10% for 3 years followed by a constant rate of 6% thereafter. The firm’s required rate of return is 11%. What is the intrinsic value of the stock today? Wesson Technologies is expected to generate $100 million in FCF next year and FCF is expected to grow at a constant rate of 4% per year. Wesson has $200 million in debt, no preferred...

Puyau Enterprises recently paid a dividend, D 0, of $3.00. It expects to have nonconstant growth of 20 percent for 2 yea...

Puyau Enterprises recently paid a dividend, D 0, of $3.00. It expects to have nonconstant growth of 20 percent for 2 years followed by a constant rate of 5 percent thereafter. The firm’s required return is 8 percent. What is the stock’s intrinsic value today? a. $120.00 b. $159.12 c. $136.67 d. $127.06 e. $158.24
PLEASE SHOW WORK. Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have...

PLEASE SHOW WORK. Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have nonconstant growth of 23% for 2 years followed by a constant rate of 9% thereafter. The firm's required return is 13%. a. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. b. What is the firm's intrinsic value today, ? Do not round intermediate calculations. Round your answer to the nearest cent.
14. Henry Inc. recently paid a dividend, Do, of $3. It expects to have nonconstant growth...

14. Henry Inc. recently paid a dividend, Do, of $3. It expects to have nonconstant growth of 20% for 3 years followed by a constant rate of 6% thereafter. The firm's required rate of return is 11% a. How far away is the horizon date? b. What is the firm's horizon value? c. What is the firm's intrinsic value today, Po?

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 12% for 2 years followed by a constant rate of 10% thereafter. The firm's required return is 15%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at...

Non Constant Growth valuation

Homework Answers

Add Answer to:
Non Constant Growth valuation

Post as a guest

Earn Coins

Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have non-constant growth of...

Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of...