Integrated Potato Chips paid a $2.10 per share dividend yesterday . You expect t
ID: 2778564 • Letter: I
Question
Integrated Potato Chips paid a $2.10 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 6% 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 10%, 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 $2.10 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 6% per year.
Explanation / Answer
a.
Calculation of Expected Dividends :
Year 1
Year 2
Year 3
Expected dividend
$ 2.22600
$ 2.35956
$ 2.50113
(2.10*106%)
(2.226*106%)
(2.35956*106%)
b.
Calculation of Price of the Stock today
Expected Dividend next year (A)
$ 2.22600
Required rate (B)
10%
Growth rate (C)
6%
Current Price = A/ (B-C)
$ 55.65
c.
Calculation of Expected Price three years from now
Expected Dividend at the end of year 4 = 2.50113*106% =(A)
$ 2.65120
Required rate (B)
10%
Growth rate (C)
6%
Expected Price three years from now = A/ (B-C)
$ 66.28
d.
Calculation of present value:
Year 1
Year 2
Year 3
Expected dividend
$ 2.22600
$ 2.35956
$ 2.50113
(2.10*106%)
(2.226*106%)
(2.35956*106%)
Selling Price at the end of year 3
$ 66.28
Total Cash Flows (CF)
$ 2.22600
$ 2.35956
$ 68.78117
PVF (10%)
0.90909091
0.826446281
0.751314801
PV = CF*PVF
$ 2.02
$ 1.95
$ 51.68
Total Present value = $55.65
a.
Calculation of Expected Dividends :
Year 1
Year 2
Year 3
Expected dividend
$ 2.22600
$ 2.35956
$ 2.50113
(2.10*106%)
(2.226*106%)
(2.35956*106%)
b.
Calculation of Price of the Stock today
Expected Dividend next year (A)
$ 2.22600
Required rate (B)
10%
Growth rate (C)
6%
Current Price = A/ (B-C)
$ 55.65
c.
Calculation of Expected Price three years from now
Expected Dividend at the end of year 4 = 2.50113*106% =(A)
$ 2.65120
Required rate (B)
10%
Growth rate (C)
6%
Expected Price three years from now = A/ (B-C)
$ 66.28
d.
Calculation of present value:
Year 1
Year 2
Year 3
Expected dividend
$ 2.22600
$ 2.35956
$ 2.50113
(2.10*106%)
(2.226*106%)
(2.35956*106%)
Selling Price at the end of year 3
$ 66.28
Total Cash Flows (CF)
$ 2.22600
$ 2.35956
$ 68.78117
PVF (10%)
0.90909091
0.826446281
0.751314801
PV = CF*PVF
$ 2.02
$ 1.95
$ 51.68
Total Present value = $55.65
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.