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Integrated Potato Chips Share Dividends

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

A. What is the expected dividend in cash 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 expect stock price 3 years from now?
D. If you buy the stock and plan to hold it for 3 years, what payments will you received? What is the present value of those payments?
Compare your answer with (B).

Solution Preview

Stock Values. 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?
You can find the expected dividend in each of the next 3 years by multiplying the dividend received in the previous period with the growth rate of 4%.
Year 0 $1
Year 1 $1 x 1.04 = ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the expected dividend in cash of the next 3 years, at what price will the stock sell if the discount rate for the stock is 12%, and what is the present value of the dividend payment.

$2.19