Business, 22.07.2020 01:01 SoUpsup

Integrated Potato Chips just paid a $2.7 per share dividend. You expect the dividend to grow steadily at a rate of 6% per year. Required:
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 today?
c. What is the expected stock price 3 years from now?

Answers: 2

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Answer from: dontcareanyonemo

D1 = $2.862 rounded off to $2.86

D2 = $3.03372 rounded off to $3.03

D3 = $3.2157432 rounded off to $3.22

Price today is $47.7

3 years from now the price will be $56.81

Explanation:

The dividend growth is expected to be constant forever. Thus, the dividend for such a stock will be calculated as follows,

Dn = D0 * (1+g)^n

Where,

D0 is the most recently paid dividendg is the constant growth raten is the number of periods/years

D1 = 2.7 * (1+0.06)^1 = $2.862 rounded off to $2.86

D2 = 2.7 * (1+0.06)^2 = $3.03372 rounded off to $3.03

D3 = 2.7 * (1+0.06)^3 = $3.2157432 rounded off to $3.22

The constant growth model of DDM will be used to calculate the price of the stock today. The formula for the stock price today under this model is,

P0 = D1 / (r - g)

Where,

r is the required rate of return or discount rate

P0 = 2.862 / (0.12 - 0.06)

P0 = $47.7

To calculate the price of the stock 3 years from now, we will use the constant growth model. However, instead of using D1, we will use D4 to calculate the P3 or price 3 years from now.

P3 = 2.7 * (1+0.06)^4 / (0.12 - 0.06)

P3 = $56.81

Answer from: Quest

answer(b) partnership';

Answer from: Quest

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans.

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.

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