Explore BrainMass
Share

Explore BrainMass

    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?

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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!

    © BrainMass Inc. brainmass.com April 1, 2020, 11:23 am ad1c9bdddf
    https://brainmass.com/business/accounting-for-corporations/43144

    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 ...

    Solution Summary

    You will find the answer to this puzzling question inside...

    $2.19