Chiptech, Inc., is an established computer chip firm with several profitable existing products as well as some promising new products in development. The company earned $1.2 a share last year, and just paid out a dividend of $0.60 per share. Investors believe the company plans to maintain its dividend payout ratio at 50%. ROE equals 22%. Everyone in the market expects this situation to persist indefinitely.

a. What is the market price of Chiptech stock? The required return for the computer chip industry is 18%, and the company has just gone ex-dividend (i.e., the next dividend will be paid in one year at t = 1). (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Market price of Chiptech stock $

b. Suppose you discover that Chiptechs competitor has developed a new chip that will eliminate Chiptechs current technological advantage in this market. This new product, which will be ready to come to the market in two years, will force Chiptech to reduce the prices of its chips to remain competitive. This will decrease ROE to 18%, and because of falling demand for its product, Chiptech will decrease the plowback ratio to 0.4. The plowback ratio will be decreased at the end of the second year, at t = 2: The annual year-end dividend for the second year (paid at t = 2) will be 60% of that years earnings. What is your estimate of Chiptechs intrinsic value per share? (Hint: Carefully prepare a table of Chiptech's earnings and dividends for each of the next three years. Pay close attention to the change in the payout ratio in t = 2.) (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)

At time 2	$
At time 0	$

c. Not available in Connect.

d. What will be the rate of return on Chiptech stock in the second year (between t = 1 and t = 2)? (Do not round intermediate calculations. Negative values should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Rate of return in the second year %

e. What will be the rate of return on Chiptech stock in the third year (between t = 2 and t = 3)? (Do not round intermediate calculations. Omit the "%" sign in your response.)

Rate of return in the third year %