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 $3.75000 dividend at that time (D, = $3.75000) and believes that the dividend will grow by 19.50000% 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 3.96000% per year. Goodwin's required return is 13.20000%. 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. Term Horizon value Current intrinsic value Value Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is and Goodwin's capital gains yield 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: Investors prefer the deferred tax liability that capital gains offer over dividends. Is this statement a possible explanation for why the firm hasn't paid a dividend yet? O Yes ○ No i X A+ O
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 $3.75000 dividend at that time (D, = $3.75000) and believes that the dividend will grow by 19.50000% 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 3.96000% per year. Goodwin's required return is 13.20000%. 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. Term Horizon value Current intrinsic value Value Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is and Goodwin's capital gains yield 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: Investors prefer the deferred tax liability that capital gains offer over dividends. Is this statement a possible explanation for why the firm hasn't paid a dividend yet? O Yes ○ No i X A+ O
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 25P
Related questions
Question
Transcribed Image Text: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 $3.75000 dividend at that time (D, = $3.75000) and believes that
the dividend will grow by 19.50000% 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 3.96000% per year.
Goodwin's required return is 13.20000%. 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.
Term
Horizon value
Current intrinsic value
Value
Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is
and Goodwin's capital gains yield
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:
Investors prefer the deferred tax liability that capital gains offer over dividends.
Is this statement a possible explanation for why the firm hasn't paid a dividend yet?
O Yes
○ No
i
X
A+
O
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