Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 19% for 2 years followed by a constant rate of 6% thereafter. The firm's required return is 17%. How far away is the horizon date

Question

String Bean

Business

2 August, 13:03

Holt Enterprises recently paid a dividend, D0, of $3.25. It expects to have nonconstant growth of 19% for 2 years followed by a constant rate of 6% thereafter. The firm's required return is 17%. How far away is the horizon date

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Danica Blackwell · Answer 1

The horizon date of Holt Enterprises is at the end of the second year.

Explanation:

The horizon date is when there is a constant growth or the growth rate becomes constant. The horizon date is the last year in the free cash flow when the growth rate is constant. It is also called forecast horizon or terminal date because it is at the end of the forecast. At the horizon date, the firm becomes stable and profitable.

The horizon date of Holt Enterprises is at the end of the second year.