Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 $5.5000 dividend at that time (D3 = $5.5000) and believes that the dividend will grow by 28.60% for the following two years (Da and Ds). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 4.38% per year. Goodwin's required return is 14.60%. 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 Value Horizon value Current intrinsic value If investors expect a total return of 15.60%, what will be Goodwin's expected dividend and capital gains yield in two years-that is, the year before the firm begins paying dividends? Again, remember to carry out the dividend values to four decimal places. (Hint: You are at year 2, and the first dividend is expected to be paid at the end of the year. Find DY, and CGY3-) Expected dividend yield (DY) Expected capital gains yield (CGY,) 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: If investors expect a total return of 15.60%, what will be Goodwin's expected dividend and capital gains yield in two years-that is, the year before the firm begins paying dividends? Again, remember to carry out the dividend values to four decimal places. (Hint: You are at year 2, and the first dividend is expected to be paid at the end of the year. Find DY3 and CGY3.) Expected dividend yield (DY3) Expected capital gains yield (CGY,) 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: Goodwin's investment opportunities are poor. Is this statement a possible explanation for why the firm hasn't paid a dividend yet? Yes O No

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Plain And Simple

Authors: Sebastian Nokes

1st Edition

0273731297, 978-0273731290

More Books

Students also viewed these Finance questions

Question

Discuss the legal framework of HRM in Canada.

Answered: 1 week ago