Holt Enterprises recently paid a dividend, D0, of $3.50. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 12%. How far away is the horizon date? - 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. - The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. - 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 the end
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Holt Enterprises recently paid a dividend, D0, of $3.50. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 12%.
How far away is the horizon date?
- 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.
- The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
- 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 the end of Year 2.
The terminal, or horizon, date is infinity since common stocks do not have a maturity date. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent.
What is the firms instrinsic value today?
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