Question
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
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 $2.1 a share last year, and just paid out a dividend of $0.84 per share. Investors believe the company plans to maintain its dividend payout ratio at 40%. ROE equals 23%. Everyone in the market expects this situation to persist indefinitely. |
a. | What is the market price of Chiptech stock? The required return for the computer chip industry is 16%, and the company has just gone ex-dividend (i.e., the next dividend will be paid a year from now, at t = 1). (Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
Market price of Chiptech stock | $ |
b. | Suppose you discover that Chiptech |
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