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?
Year 1 dividend = 3.25 (1 + 20%) = 3.9
Year 2 dividend = 3.9 (1 + 20%) = 4.68
Year 3 dividend = 4.68 (1 + 5%) = 4.914
Horizon value = D3 / required rate - growth rate
Horizon value = 4.914 / 0.19 - 0.05
Horizon value = 4.914 / 0.14
Horizon value = $35.10
Hart Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of...
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