If investors expect a total return of 15.00%, 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 DY₃ and CGY₃.)

1. Expected dividend yield (DY₃) ?

2. Expected capital gains yield (CGY₃) ?

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.

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

Answer rating: 100% (QA)

ANSWER Expected Dividend Yield DY The expected dividend yield DY is calculated as follows DY D P Whe... View the full answer