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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).

#### 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