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    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. What is the expected dividend in each of the next 3 years?

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    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 receive? What is the present value of those payments? Compare your answer to (b).

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    https://brainmass.com/business/dividends-stock-repurchase-and-policy/116565

    Solution Preview

    a)
    Dividend in year 1 = 1.00*(1+4%)=$1.04
    Dividend in year 2 = 1.04*(1+4%)=$1.0816
    Dividend in year 3 = 1.0816*(1+4%)=$1.124864

    b) ...

    Solution Summary

    Calculations shown in detail.

    $2.19

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