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Please explain the answer. Thanks! 9. Stocks that don't pay dividends yet Goodwin Technologies, a relatively young company, has been wildly successful but has yet
Please explain the answer. Thanks!
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 $3.2500 dividend at that time (D3 = $3.2500) and believes that the dividend will grow by 16.90% 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 3.84% per year. Goodwin's required return is 12.80%. 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 Value Horizon value Current Intrinsic value $51.47 If investors expect a total return of 13.80%, 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 DYs and CGY3.) Expected dividend yield (DY3) Expected capital gains yield (CGY3)Step by Step Solution
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