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Determing Dividend Amounts and Stock Price

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 = $ $ $

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