INV3 P6a You are interested in determining the intrinsic value of Hoffman Inc. Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and...

INV3 P6a

You are interested in determining the intrinsic value of Hoffman Inc.

Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely.

Lastly, your estimate of the required return on the firm’s equity is 12%.

Hoffman’s recently published annual report shows the following financial relationships:

Assets = 1.4 x Equity

Current Assets = 1.7 x Current Liabilities

Sales = 1.5 x Assets

Net Income = 8% x Sales

Dividends = 30% x Net Income

Earnings per share (Basic) = $0.80 per share

Determine the growth rate of the company for the prior and for each of the next two years.