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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’s dividend to grow at a constant rate of 4.32000% per year. Goodwin’s required return is 14.40000%. 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.
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: 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? Yes No |

Answer #1

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...

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...

Laurel Enterprises expects earnings next year of $4 per share.
The company will pay out all of its earnings to investors. Its
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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.,...

- 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...

Problem 7-20
Nonconstant Growth Stock Valuation
Reizenstein Technologies (RT) has just developed a solar panel
capable of generating 200% more electricity than any solar panel
currently on the market. As a result, RT is expected to experience
a 15% annual growth rate for the next 5 years. By the end of 5
years, other firms will have developed comparable technology, and
RT's growth rate will slow to 8% per year indefinitely.
Stockholders require a return of 11% on RT's stock....

3. 3: Stocks and Their Valuation: Corporate Valuation
Model
The recognition that dividends are dependent on earnings, so a
reliable dividend forecast is based on an underlying forecast of
the firm's future sales, costs and capital requirements, has led to
an alternative stock valuation approach, known as the corporate
valuation model. The market value of a firm is equal to the present
value of its expected future free cash flows plus the market value
of its non-operating assets:
Free cash flows...

Quantitative Problem 1: Hubbard Industries just
paid a common dividend, D0, of $1.00. It expects to grow
at a constant rate of 3% per year. If investors require a 10%
return on equity, what is the current price of Hubbard's common
stock? Do not round intermediate calculations. Round your answer to
the nearest cent.
$ per share
Zero Growth Stocks:
The constant growth model is sufficiently general to handle the
case of a zero growth stock, where the dividend is expected...

Quantitative Problem 1: Hubbard Industries just
paid a common dividend, D0, of $1.30. It expects to grow
at a constant rate of 4% per year. If investors require a 10%
return on equity, what is the current price of Hubbard's common
stock? Round your answer to the nearest cent. Do not round
intermediate calculations.
$ per share
Zero Growth Stocks:
The constant growth model is sufficiently general to handle the
case of a zero growth stock, where the dividend is...

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