Question
I need help with the following problem. Please provide explanation so I know how to work it out. Question 1. Find the horizon value and
I need help with the following problem. Please provide explanation so I know how to work it out.
Question 1. Find the horizon value and the intrinsic value
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 $4.75000 dividend at that time (D = $4.75000) and believes that the dividend will grow by 24.70000% 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 4.20000% per year. Goodwin's required return is 14.00000%. 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 places.
Question 2. Find the Expected Dividend Yield (DY3) and the Expected Capital Gains Yield (CGY3)
If investors expect a total return of 15.00%, what will be Goodwin's expected dividend and capital gains yieldin two yearsthat 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 CGY.)
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