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

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. 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.) Expected Dividend Year 1 Year 2 Year 3 b. 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.) Current price $ c. What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) uture price d. 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 "O" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.) Year 1 Year 2 Year 3 DIV Selling price Total cash flow PV of cash flow

Explanation / Answer

Part 1:

D1 = 2.9 * 1.05 = 3.05

D2 = 2.9 * 1.052 = 3.20

D3 = 2.9 * 1.053 = 3.36

Part 2:

P0 = D1/ (Required Rate - Growth rate)

P0 = 3.05/ (11% - 5%)

P0 = 50.75

Part 3:

P3 = D4/ (Required Rate - Growth rate)

P3 = 2.90 * 1.054/ (11% - 5%)

P3 = 3.52/ 6%

P3 = 58.75

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