Question

Integrated Potato Chips paid a $270 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 6% 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 b. If the discount rate for the stock is 10%, 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 S 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 Total cash flow PV of cash flow

Answer 1

B6 ✓ fc =+B5/(10%-6%) - B PVIF @10% Present value 0.909 $ 2.60 0.826 $ 2.51 0.751 $ 2.42 2 D1 3 D2 4 D3 5 D4 6 Stock price in 3 years 7 $ 2.86 $ 3.03 $ 3.22 $ 3.41 $ 85.22 0.751 $ 64.02 8 Current value of the stock $ 71.55

Year 1 Year 2 Year 3 Expected dividend 2.86 3.03 3.22 b) Current prices 71.55 c) Future price $ 85.22 Year 1 $ 2.86 DIV Seling price Total cash flow PV of cash flow Sum of PV's Year 2 Year 3 $3.03 $ 3.22 $ 85.22 $3.03 $ 88.43 $2.51 $ 66.44 $ 2.86 $ 2.60 $ 71.55

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