$7.$ 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 $$4\mathrm{.}50$ dividend at that time $(D_3=$$$4\mathrm{.}50)$ and believes that the

dividend will grow by $23\mathrm{.}40\%$ for the following two years $(D_4$ and $\{$:$D_5).$ However, after the fifth year, she expects Goodwin's dividend to grow at a

constant rate of $4\mathrm{.}14\%$ per year.

Goodwin's required return is $13\mathrm{.}80\%.$ Fill in the following chart to determine Goodwin's horizon value at the horizon date$-$when constant growth

begins$-$and the current intrinsic value.

If investors expect a total return of $14\mathrm{.}80\%,$ what will be Goodwin's expected dividend yield and capital gains yield in two years$-$that 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 DY $3$ and

$CG{Y}_3.)$

Expected dividend yield $($DY $3)$

Expected capital gains yield $($CGY $3)$