# Integrated Potato Chips: What is the expected dividend in each of the next 3 years and if the discount rate for the stock is 12 percent, at what price will the stock sell?

Integrated Potato Chips paid a $1 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4 percent per year.

a. What is the expected dividend in each of the next 3 years?

b. If the discount rate for the stock is 12 percent, at what price will the stock sell?

c. What is the expected stock price 3 years from now?

d. If you buy the stock and plan to hold it for 3 years, what payments will you recieve? What is the present value of those payments? Compare your answer to (b).

Please show detail. Thanks!

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#### Solution Preview

a. What is the expected dividend in each of the next 3 years?

Do = 1.00

D1 = Do * (1+g) = 1*(1+4%) = 1.04

D2 = D1 * (1+g) = 1.04*(1+4%) = 1.08

D3 = D2 * (1+g) = 1.08*(1+4%) = 1.125

b. If the discount rate for the stock is 12 ...

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