Integrated Potato Chips paid a $2.90 per share dividend yesterday . You expect t

Question

Integrated Potato Chips paid a $2.90 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 5% per year.

What is the expected dividend in each of the next 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

If the discount rate for the stock is 11%, at what price will the stock sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Integrated Potato Chips paid a $2.90 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 5% per year.

Explanation / Answer

1) D0 dividend 2.9 g 5% Dividend in 1st year(2.9(1.05) 3.045 Dividend in 2nd year(3.045(1.05) 3.197 Dividend in 3rd year(3.19725(1.05) 3.357 2) Ke 11% Price = D1/ke-g or 3.045/(11-5)% 50.75 3) Dividend in 4thyear(3.3571125(1.05) 3.525 Price at end of 3 year= D1/ke-g or 3.525/(11-5)% 58.75 Particulars Time PVF Amount PV Cash Inflows - Dividend 1      0.9009         3.045           2.74 Cash Inflows - Dividend 2      0.8116         3.197           2.59 Cash Inflows - Dividend 3      0.7312         3.357           2.45 Cash Inflows - price at end of 3 years 3      0.7312      58.749         42.96 PV of cash Inflows         50.75

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