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 $5.25000 dividend at that time (D3 = $5.25000) and believes that the dividend will grow by 27.30000% for the following two years (D4 and D3). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 4.32000% per year. Goodwin's required return is 14.40000%. 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. Тerm Value Horizon value Current intrinsic value Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is_ and Goodwin's capital gains yield is Goodwin has been very successful, but it has not 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 has not paid a dividend 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 $5.25000 dividend at that time (D3 = $5.25000) and believes that the dividend will grow by 27.30000% for the following two years (D4 and D3). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 4.32000% per year. Goodwin's required return is 14.40000%. 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. Тerm Value Horizon value Current intrinsic value Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is_ and Goodwin's capital gains yield is Goodwin has been very successful, but it has not 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 has not paid a dividend yet?|
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:9. Stocks that do not 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 $5.25000 dividend at that time (D3 = $5.25000) and believes that the dividend will grow by 27.30000% for the
following two years (Da and Ds). However, after the fifth year, she expects Goodwin's dividend to grow at a
constant rate of 4.32000% per year.
Goodwin's required return is 14.40000%. 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
Value
Horizon value
Current intrinsic value
Assuming that the markets are in equilibrium, Goodwin's current expected dividend yield is
and
Goodwin's capital gains yield is_
Goodwin has been very successful, but it has not 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 has not paid a dividend yet?|
No
Yes
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