Dividend Discount Model. Integrated Potato Chips just paid a $1 per share dividend.
You expect the dividend to grow steadily at a rate of 4% per year. (LO7-2)
a. What is the expected dividend in each of the next 3 years?
b. If the discount rate for the stock is 12%, 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 sell it 3 years from now, what are your expected cash flows in (i) year 1; (ii) year 2; (iii) year 3?
e. What is the present value of the stream of payments you found in part (d)? Compare your answer to part (b).