Goodwin Technologies, a relatively new 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 $1.75 dividend at that time (D3= $1.75) and believes that the dividend will grow by 9.10% 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 $3.48 per year.

Goodwin's required rate of return is 11.60%. Find Goodwin's horizon value at the horizon date-when constant growth begins- and the current intrinsic value.

1) Horizon Value- A) $31.86 B) $22.57 C) $18.58 D) $26.55

2) Current Intrisic Value- A) $19.03 B) $19.56 C) $8.69 D) $17.77

If investors expect a total return of 12.60%, what will Goodwin's expected dividend and capital gains yield in two years- that is, the year before the firm begins paying dividends?

3) Expected dividend yield (DY3)- A) 9.20% B) 10.03% C) 7.85% D) 7.57%

4) Expected Capital Gains Yield (CGY3) - A) 1.53% B) 5.03% C) -4.09% D) 11.52%

5) Is the following statement a possible explanation for why the firm hasn't paid a dividend yet, YES or NO?

"Investors prefer the deferred tax liability that capital gains offer over dividends."