Question

**9. Stocks that don't 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 $3.50000 dividend at that time (D₃ = $3.50000) and believes that the dividend will grow by 18.20000% for the following two years (D₄ and D₅). However, after the fifth year, she expects Goodwin’s dividend to grow at a constant rate of 3.90000% per year.

Goodwin’s required return is 13.00000%. 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 hasn’t paid a dividend yet. It circulates a report to its key investors containing the following statement:

Goodwin has a large selection of profitable investment opportunities.

**Is this statement a possible explanation for why the
firm hasn’t paid a dividend yet?**

No

Yes

Answer #1

/ 3
9. Stocks that don't 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 (D₄ and D₅). However,
after the fifth year, she expects...

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 $3.0000 dividend at
that time (D3D3 = $3.0000) and believes that the dividend will grow
by 15.60% for the following two years (D4D4 and D5D5). However,
after the fifth year, she expects Goodwin’s dividend to grow at a
constant rate of...

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 $4.7500 dividend at
that time (D3D3 = $4.7500) and believes that the dividend will grow
by 24.70% for the following two years (D4D4 and D5D5). However,
after the fifth year, she expects Goodwin’s dividend to grow at a
constant rate of...

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 $2.50000 dividend at
that time (D₃ = $2.50000) and believes that the dividend will grow
by 13.00000% for the following two years (D₄ and D₅). However,
after the fifth year, she expects Goodwin’s dividend to grow at a
constant rate of...

- Scampini Technologies is expected to generate $175 million in
free cash flow next year, and FCF is expected to grow at a constant
rate of 5% per year indefinitely. Scampini has no debt or preferred
stock, and its WACC is 15%. If Scampini has 55 million shares of
stock outstanding, what is the stock's value per share?
- Enterprises recently paid a dividend, D0, of $3.75.
It expects to have nonconstant growth of 15% for 2 years followed
by...

Flash Inc. was founded 5 years ago. It has been profitable for
the last 2 years, but it has needed all of its earnings to support
growth and thus has never paid a dividend. Management has indicated
that it plans to pay a $1 dividend starting one year from today,
then it will increase the dividend growth by 50% for the next two
years, and then the company will achieve a long run growth rate of
6%. Assuming a required...

Flash Inc. was founded 5 years ago. It has been profitable for
the last 2 years, but it has needed all of its earnings to support
growth and thus has never paid a dividend. Management has indicated
that it plans to pay a $1 dividend starting one year from today,
then it will increase the dividend growth by 50% for the next two
years, and then the company will achieve a long run growth rate of
6%. Assuming a required...

A financial analyst has been following Davis Inc., a new
high-tech firm. He estimates that the current risk-free rate
(rF) is 6.25%, the market risk premium (rM -
rF) is 5%, and the firm’s beta is 1.75. The current
dividend just paid (D0) is $1.00. The analyst estimates
that the company’s dividend will grow at a rate of 25% this year,
20% next year, and 15% the following year. After three years the
dividend is expected to grow at a...

ABC company has a current stock price of $40.00 and expects to
pay a dividend in one ONE year of $1.80. The dividend is expected
to grow at a constant rate of 6% annually. ABC Company has a beta
of 0.95, the market is expected to return to 11%, and the risk-free
rate of interest is 4%. The expected stock price two years from
today is closest to:
A:$41.03
B.$43.38
C.$43.49
D. $43.94

Laurel Enterprises expects earnings next year of $4 per share.
The company will pay out all of its earnings to investors. Its
expected return on new investment (i.e., ROE) is 12%.
The required rate of return is 10%. What is the intrinsic value
of the stock today?
Laurel Enterprises expects earnings next year of $4 per share.
The company will retain $2.4 of its earnings to reinvest in new
projects that have an expected return of 12% per year (i.e.,...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 54 seconds ago

asked 4 minutes ago

asked 4 minutes ago

asked 6 minutes ago

asked 16 minutes ago

asked 35 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago