Business Finance Bonds Question
Question Description
Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have nonconstant growth of 15% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 17%.
- 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 end of Year 2.
- The terminal, or horizon, date is infinity since common stocks do not have a maturity 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.
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