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 $4.75000 dividend at that time (D = $4.75000) and believes that the dividend will grow by 24.70000% for the following two years (D. and Ds). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 4.20000% per year. Goodwin's required return is 14.00000%. 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 yet to record a profit (positive net income). Is this statement a possible explanation for why the firm hasn't paid a dividend yet? Ο Νο Yes

Answer 1

M/T/W/T/F /S /SU Date... - to calculate horison value, - Horizon value / terminal value is the present value at a future point in time of all future cash flows when we expect stable growth rate forever So, here we expect stable growth rate аtох чая, vil - Horizon value = Da dividend (HV) Discount growth t rate rate. Calvelation D of dividend each year, = 0 D = 0 Dy & 5.868 (4078 (1+0'247 Do = 7:31 $ 75.86$ (1+0.2477

M/T/W /T/F /S /SU Do = 706df [7.31$ (1+0.041)] I HV = 7.6a & betaal 10.14 0.042 _ = = 1.784. 7.6 $ 0.098 0 (10) Calculation of current intrinsic valills fCF Cita + f(f2 Citr) 2 + ferz + ... + Ferminal valu (tr) i trok (1+r)? + o (1+0.14) 0 + Hoz t 5.86 t (1+0.14)2 (+014) 3 (1+0 143 + 7.8 + terminal valu (1 +0.144 min (1+0.14) = 0 tot 407 + 5.86 + 7.3085 + 54.40 1.48 1.69 10 1.93 o 2.19 Otor 3.18+ 3.47+ 3.79 +d4.84 = 35:28$ -

M/T/W/T/F/S/SU Date.. I calculation of terminal value , Projected cash flow of year Required rate of return 7.6155 & 54°40$. 4. = 0,14 0,0 Intrinsic value in = 35.28 $ 6) Din current dividend yield = zero I as there is no dividend paid in D) Tilt capital gains yield - zero I= Price at year, - Price at year, Puce at year Гал Maxkoti axo at Qapilibrium, hохо ЛВ V change is price] 8118 tot

And Yes, the statement is a possible explanation as to why Goodwin hasn't paid dividend yet.