## Answers

Solution ( a ) | |||||

Horizon date is the date when the growth rate becomes constant. This occurs at the end of year 2 | |||||

Hence option (iv) is correct | |||||

Solution ( b ) | |||||

Year | Dividend | Dividend | |||

1 | 2.75*121% | $ 3.3275 | |||

2 | 3.3275*121% | $ 4.0263 | |||

Current Dividend | $ 4.026275 | ||||

Rate of return | 9.00% | ||||

Growth Rate | 3.00% | ||||

Horizon value | =Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate) | ||||

'4.0262*(1+3%)/(9%-3%) | |||||

Horizon value | $ 69.12 | ||||

Solution ( c ) | |||||

Year | Dividend | PV factor @ 9% | Present Values | ||

1 | $ 3.328 | 0.9174 | $ 3.05 | ||

2 | $ 4.026 | 0.8417 | $ 3.39 | ||

2 | $ 69.118 | 0.8417 | $ 58.18 | ||

Total PV | $ 64.62 | ||||

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