Stock Values. Integrated Potato Chips

Discuss the importance of forecasting and why businesses spend time,
effort , and money to produce forecasts.

-Discuss how management goals are integrated into pro forma financial
statements.

Discuss who should be involved in the development of the budget? Why is
it important to have management approval of a budget?

Stock Values. 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?

If the discount rate for the stock is 12 percent, at what price will the
stock sell?

What is the expected stock price 3 years from now.

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)

19

Constant-Growth Model. Here are data on two stocks, both of which have
discount rates of 15 percent:

  Stock A Stock B

Return on equity 15% 10%

Earnings per share $2.00 $1.50

Dividends per share $1.00 $1.00



What are the dividend payout ratios for each firm.

What are the expected dividend growth rates firm

what is the proper stock price for each firm











Dividend Policy. Here are several assertions about typical corporate
dividend policies. Which of them are true? Write out a corrected version
of any false statements.

Most companies set a target dividend payout ratio.

They set each year's dividend equal to the target payout ratio times
that year's earnings

Managers and investors seem more concerned with dividend changes than
dividend levels.

Managers often increase dividends temporarily when earnings are
unexpectedly high for a year or two.

21, Dividend Policy. For each of the following four groups of companies,
state whether you would expect them to distribute a relatively high or
low proportion of current earnings and whether you would expect them to
relatively high or low price-earnings ratio.

High-risk companies.

Companies that have recently experienced a temporary decline in profits

Companies that expect to experience a decline in profits

Growth” companies with valuable future investment opportunities.

22. Dividend Policy. “Risky companies tend to have lower target payout
ratios and more gradual adjustment rates.” Explain what is meant by
this statement. Why do you think it is so?