55020B 1-20179 Conr ×y Connect Secure l https://newconnect.mheducation com/flow/

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55020B 1-20179 Conr ×y Connect Secure l https://newconnect.mheducation com/flow/connecth., a o BUS5020 Homework.. Saved Help Save & Exit Submit Check my work Integrated Potato Chips just paid a $2.7 per share dividend. You expect the dividend to grow steadily at a rate of 6% per year. 2 points a. What is the expected dividend in each of the next 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Skipped Expected Dividencd eBook Year 1 Year 2 Year 3 Hint Print References Mc Graw Hill we do) 18 PM 12/17/2017 Desktop

Explanation / Answer

a)

Expected dividend in each of next 3 years:

Year 1 = 2.7*1.06 = 2.862

Year 2 = 2.862*1.06 = 3.034

Year 3 = 3.034*1.06 = 3.216

b)

Discount rate = 10%

Price of stock = Dividend for 1st year//(Required rate - growth rate)

= 2.862/(10% - 6%) = 2.862/4% = 71.55

c)

Expected stock price 3 years from now = D4/(Required rate - growth rate)

D4 = 3.216*1.10 = 3.5376

Price of stock at th end of 3rd year (Future price) = Dividend for 4th year//(Required rate - growth rate)

= 3.5376/(10% - 6%) = 3.5376/4% = 88.44

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