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Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend

Finance

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 $2.25000 dividend at that time (D? = $2.25000) and believes that the dividend will grow by 11.70000% 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 3.60000% per year.

Goodwin’s required return is 12.00000%. Goodwin’s horizon value at the horizon date (when constant growth begins) is $34.62 and the current intrinsic value is $24.44.

 

If investors expect a total return of 13.00%, 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?.)

 

Expected dividend yield:

a. 8.23%

b. 8.11%

c. 9.21%

d. 10.28%

Expected capital gains:

a. 4.17%

b. 11.92%

c. -3.93%

d. 4.77%

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