Hart Enterprises recently paid a dividend, D0, of $3.50. It expects to have nonconstant growth of 24% for 2 years followed by a constant rate of 5% thereafter. The firm’s required return is 8%.

- 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 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.
- 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.

- What is the firm’s horizon, or continuing, value? Round your answer to two decimal places.
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- What is the firm’s intrinsic value today,
*P0*? Round your answer to two decimal places.

Javits & Sons’ common stock currently trades at $22.00 a share. It is expected to pay an annual dividend of $2.75 a share at the end of the year (D1 = $2.75), and the constant growth rate is 7% a year.

- What is the company’s cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places.

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- If the company were to issue new stock, it would incur a 10% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places.

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Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $2.00 coming 3 years from today. The dividend should grow rapidly – at a rate of 28% per year – during Years 4 and 5; but after Year 5, growth should be a constant 9% per year. If the required return on Microtech is 18%, what is the value of the stock today? Round your answer to the nearest cent.

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Tunney Industries can issue perpetual preferred stock at a price of $53.50 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company’s cost of preferred stock, rp? Round your answer to two decimal places.

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Warr Corporation just paid a dividend of $1.75 a share (that is, D0 = $1.75). The dividend is expected to grow 7% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places.

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The Heuser Company’s currently outstanding bonds have a 10% coupon and a 12% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Heuser’s after-tax cost of debt? Round your answer to two decimal places.

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Thomas Brothers is expected to pay a $3.3 per share dividend at the end of the year (that is, D1 = $3.3). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 15%. What is the stock’s current value per share? Round your answer to two decimal places.

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Trivoli Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $92.00; but flotation costs will be 10% of the market price, so the net price will be $82.80 per share. What is the cost of the preferred stock, including flotation? Round your answer to two decimal places.

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