Question: 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.
1) What is the expected dividend in each of the next 3 years?
2) If the discount rate for the stock is 12 percent, at what price will the stock sell?
3) What is the expected stock price 3 years from now?
4) 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).