7 . 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 $4.50 dividend at that time (D3 = $4.50) and believes that the dividend will grow by 23.40% 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 4.14% per year. Goodwin's required return is 13.80%. Fill in the following chart to determine Goodwin's horizon value at the horizon datewhen constant growth beginsand the current intrinsic value. Term Value Horizon value $73.87 Y Current intrinsic value $48.65 V If investors expect a total return of 14.80%, what will be Goodwin's expected dividend yield and capital gains yield in two yearsthat is, the year before the firm begins paying dividends? (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.) 4 Expected dividend yield (DY3) 4 Expected capital gains yield (CGY3)