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NONCONSTANT GROWTH VALUATION Holt Enterprises recently paid a dividend, D0, of $3.75. It expects to...

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Accounting

NONCONSTANT GROWTH VALUATION

Holt Enterprises recently paid a dividend, D0, of $3.75. 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 18%.

  1. How far away is the horizon date?
    1. The terminal, or horizon, date is infinity since common stocks do not have a maturity date.
    2. 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.
    3. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
    4. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.
    5. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.

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