Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Can you help me w this question? 9. Stocks that don't pay dividends yet Goodwin Technologies, a relatively young company, has been wildly successful but
Can you help me w this question?
9. Stocks that don't pay dividends yet Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expects Goodwin to pay a $4.5000 dividend at that time (D3 = $4.5000) and believes that the dividend will grow by 23.40% for the following two years (D4 and Ds). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 4.14% per year. Goodwin's required return is 13.80%. Fill in the following chart to determine Goodwin's horizon value at the horizon date-when constant growth begins-and the current intrinsic value. To increase the accuracy of your calculations, carry the dividend values to four decimal places. Term Horizon value Current Intrinsic value Value $73.87 $48.65 Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is 0.00% , and Goodwin's capital gains yield is 9.25% 0.00% 11.41% 9.28% Goodwin has been very successful, but it hasn't paid a dividend yet. It circulates a report to its key investors containing the following statement: Investors prefer the deferred tax liability that capital gains offer over dividends. Is this statement a possible explanation for why the firm hasn't paid a dividend yet? O No YesStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started