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 D₂). 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 If investors expect a total return of 14.20%, 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 DY, and CGY,.) $51.21 $38.02 Expected dividend yield (DY) Expected capital gains yield (CGY,) 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 has yet to record a profit (positive net income). Yes Is this statement a possible explanation for why the firm hasn't paid a dividend yet? Ο 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 $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 D₂). 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 If investors expect a total return of 14.20%, 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 DY, and CGY,.) $51.21 $38.02 Expected dividend yield (DY) Expected capital gains yield (CGY,) 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 has yet to record a profit (positive net income). Yes Is this statement a possible explanation for why the firm hasn't paid a dividend yet? Ο NO
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
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Concept explainers
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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Transcribed Image Text:**Goodwin Technologies Dividend Forecast and Analysis**
Goodwin Technologies, a relatively young company, has experienced significant success but has yet to distribute a dividend. An analyst predicts that Goodwin is likely to issue its first dividend three years from now. The prediction indicates that Goodwin will pay a $3.75 dividend at that time (D₃ = $3.75) and expects the dividend to grow by 19.5% for the following two years (D₄ and D₅). After the fifth year, the dividend is projected to grow at a constant rate of 3.96% per year.
Goodwin’s required return stands at 13.20%. The table below calculates Goodwin’s horizon value at the horizon date, when constant growth begins, alongside the current intrinsic value. For precision, intermediate values in calculations should not be rounded, with the final answers rounded to two decimal places.
| Term | Value |
|------------------------|-------------|
| Horizon value | **$51.21** |
| Current intrinsic value| **$38.02** |
Investors expecting a total return of 14.20% are guided to calculate Goodwin’s expected dividend and capital gains yield in two years—just before dividends commence. Assuming the first dividend is paid at the end of Year 3, find the values for DY₂ and CGY₂, ensuring dividend values are calculated to four decimal places.
| | |
|------------------------|-------------|
| Expected dividend yield (DY₂) | |
| Expected capital gains yield (CGY₂) | |
Although Goodwin has achieved substantial success, it has not issued a dividend. Their report to key investors includes the following statement:
- "Goodwin has yet to record a profit (positive net income)."
**Question:**
Is this statement a possible explanation for why the firm hasn’t paid a dividend yet?
- Yes
- No
This educational analysis provides insights into potential future financial strategies and valuations essential for both current and prospective investors evaluating Goodwin Technologies.
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