Explore BrainMass
Share

# 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).

#### 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