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Chrome File Edit View History Bookmarks People Window Help A 100% . Mon 4:57 PM QE 2003-2005 NISSAN 350ZZ 3 Rising Storm 2: Vietnam on S/X- MindTap-Cengage Learning s × × ng.cengage.com/static/nb/ui/index.html?nbld-6074 34&nbNodelda; 2 2 2 4284 55&eISBN-9; 781 30 563 597 5# ! &parentld.; 2 2 2 4 287 96 MINDTAP Nate Young (3) Assignment 09-Stocks and Their Valuation Due on Nov 11 at 11:59 PM CST 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 S 1.5000 dividend at that time (D3 = 1.5000) and believes that the dividend will grow by 7.80% 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 3.42% per year Goodwin's required return is 11.40%. 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 decimal places. Term Value Horizon value Current Intrinsic value $19.20 $15.81 $27.11 $22.59 Assuming that the markets are in equilibriun, Goodwin's current expected dividend yield is Goodwin's capital gains yield is an 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 No O Yes more)

Explanation / Answer

Current expected dividend yield = 0% since there are no dividends

The statement is true as capital gains are taxed at less rate than dividends

Year Div Present Value 0 0 0 1 0 0 2 0 0 3 1.5 1.5 1.085014861 4 1.617 1.617 1.049951544 5 1.743126 22.59074 Horizon value 24.33386421 14.18355595 1.802741 Intrinsic Value 16.33

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