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 $5.50000 dividend at that time (D = $5.50000) and believes that the dividend will grow by 28.60000% for the following two years (D and D). However, after the fifth year, she expects Goodwins dividend to grow at a constant rate of 4.38000% per year. Goodwins required return is 14.60000%.

Fill in the following chart to determine Goodwins 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. What is the Horizon Value:_____ and the Current Intrisic Value:______?

Term Value Horizon value Current intrinsic value Assuming that the markets are in equilibrium, Goodwins current expected dividend yield is:_____ , and Goodwins capital gains yield is:_____ . Goodwin has been very successful, but it hasnt 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.

Is this statement a possible explanation for why the firm hasnt paid a dividend yet? No or Yes