ntegrated Potato Chips paid a $1.90 per share dividend yesterday . You expect th
ID: 2705966 • Letter: N
Question
ntegrated Potato Chips paid a $1.90 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4% 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 12%, 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.)
ntegrated Potato Chips paid a $1.90 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4% per year.
Explanation / Answer
1) dividends are
year 1 -> 1.9 * 1.04 = 1.976
year 2 -> 1.9 * 1.04^2 = 2.05504
year 3 -> 1.9 * 1.04^3 = 2.1372416
2) price = 1.9 * 1.04 / ( 0.12 - 0.04 ) = 24.7
3) stock price in 3 years is
2.1372416 * 1.04 / ( 0.12 - 0.04 ) = 27.7841408
4)
year 1)
Div = 1.976
selling price = 1.976 * 1.04 / ( 0.12 - 0.04 ) = 25.688
Total Flow = 25.688 + 1.976 = 27.664
PV = 27.664/ 1.12 = 24.7
year 2)
div = 2.05504
selling price = 2.05504 * 1.04 / ( 0.12 - 0.04 ) =26.71552
Total = 28.77056
PV = 28.77056/1.12^2 = 22.935714285714283
year 3 )
div = 2.172416
selling price = 2.172416 * 1.04 / ( 0.12 - 0.04 ) = 28.241408
total = 30.413824
PV = 30.413823 / 1.12^3 = 21.647959183673464
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