7 . 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 $4.50 dividend at that time (D3 = $4.50) and believes that the dividend will grow by 23.40% for the following two years (D4 and D5). 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. Term Value Horizon value $73.87 Y Current intrinsic value $48.65 V If investors expect a total return of 14.80%, what will be Goodwin's expected dividend yield and capital gains yield in two years—that is, the year before the firm begins paying dividends? (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.) 4 Expected dividend yield (DY3) 4 Expected capital gains yield (CGY3) 

for expected dividend yield the answer should be either a)11.41 b) 9.25 c) 9.28 d) 7.32 
and the expected capital yield should either be a) 16.08 b) -3.18 c) 7.48 d) 13.73

7. 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 $4.50 dividend at that time (D3 = $4.50) and believes that the dividend will grow by 23.40% for the following two years (D4 and D5). 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. Term Horizon value Value $73.87 Current intrinsic value $48.65 If investors expect a total return of 14.80%, what will be Goodwin's expected dividend yield and capital gains yield in two yearsthat is, the year before the firm begins paying dividends? (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 (CGY3)