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 $2.7500 dividend at that time (D3 $2.7500) and believes that the dividend will grow by 14.30% 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 3.72% per year. Goodwin's required return is 12.40%. 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 dedimal places. Value Term Horizon value Current Intrinsic value If investors expect a total return of 13.40%, 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 (CGY3) 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 No
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 $2.7500 dividend at that time (D3 $2.7500) and believes that the dividend will grow by 14.30% 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 3.72% per year. Goodwin's required return is 12.40%. 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 dedimal places. Value Term Horizon value Current Intrinsic value If investors expect a total return of 13.40%, 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 (CGY3) 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 No
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 10P
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Transcribed Image Text: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
$2.7500 dividend at that time (D3 $2.7500) and believes that the dividend will grow by 14.30% 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
3.72% per year.
Goodwin's required return is 12.40%. 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 dedimal places.
Value
Term
Horizon value
Current Intrinsic value
If investors expect a total return of 13.40%, 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 (CGY3)
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
No
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