Goodwin Technologies, a relatively young company, has been wildly successful but

Question

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 $4.2500 dividend at that time (D_3 = $4.2500) and believes that the dividend will grow by 22.10% for the following two years (D_4 and D_5). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 4.08% per year. Goodwin's required return is 13.60%. 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. If investors expect a total return of 14.60%, 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. 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:

Explanation / Answer

PVF D3 4.25 0.682127 2.899038 D4 5.18925 0.600464 3.115956 D5 6.336074 0.528577 3.349104 D5 69.27086 0.528577 36.61499         45.98

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