Ch 09: Assignment - Stocks and Their Valuation

9. Stocks that don't pay dividends yet

Goodwin

Technologies, a relatively young company, has been wildly successful but has vet 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 $3.75000 dividend at that time (D. = $3.75000) and believes that

the dividend will grow by 19.50000% for the following two years (D, and D.). However, after the fifth year, she expects Goodwin's dividend to grow at

a constant rate of 3.96000% per yea

Goodwin's required return is 13.20000%. 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, do not round your intermediate calculations, but round all final answers to two decimal blacec

Term

Horizon value

Current intrinsic value

Assuming that the markets are in equilibnum, Goodwin's current expected dividend vield is

and Goodwin's capital aains vield is

Goodwin has been very successful. but it hasn't paid a dividend yet. It circulates a report to its key investors containing the followina statement:

Goodwin has vet to record a profit Dositive net income.

is this statement a possible explanation for why the firm hasn't paid a dividend yet?

Yes

No

whents to twe detime plaste