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    Determing Dividend Amounts and Stock Price

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    Integrated Potato Chips paid a $1.70 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 $________

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    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.)

    Future 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 "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

    Year 1 Year 2 Year 3
    DIV = $ $ $
    Selling price = $ $ $

    Year 1 Year 2 Year 3
    Total cash flow = $ $ $
    PV of cash flow = $ $ $

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    https://brainmass.com/business/accounting/determing-dividend-amounts-and-stock-price-454922

    Solution Summary

    This solution illustrates how to compute the amounts of future dividends and to use that information to determine a stock's current price.

    $2.19

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