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Chiptech, Inc., is an estsbished computer chip firm with seversl profitsble exsting product: sa well sa some promling new products In development. The compsny earned

Chiptech, Inc., is an estsbished computer chip firm with seversl profitsble exsting product: sa well sa some promling new products
In development. The compsny earned $230 s shsre lsst yesr, snd just psid out s dvidend of $0.92 per shsre. limestors believe the
campony plans to malnts/n its dwidend psyout rat/o st 40%. ROE equals 21%. Everyone in the market expects this stustan to persizt:
Indefinitely.
a. What is the market price of Chiptech stock? The required return for the computer chip induatry is 15%, snd the compony has just
gone ex-dividend (Le- the next dividend will be poid s yesr from now, st t- T).(Do not round Intermedlate colculations. Round your
onswer to 2 declmal places.)
Answer is complete and correct.
Marhot pripe of Oripthch stock
5,43.45
b. Suppose you discover that Chiptech's compettor has developed a new ch'p thst will eliminste Chiptech's current technological
soventege in this moricet. This new product, which will be resody to came to the market in two years, will force Chiptech to reduce the
prices of its chipa to remsin comperthe. Thls will decresse ROE to 15%, end, beceuse of fo ing demend for tro product, Chiptech will
decresse the plowbsck rsto to 0.5. The plowbeck rsto will be decressed st the end of the second yesr, st t=2. The snnusl yesr-end
dlvidend for the second year (po'd st t-2) will be 50% of that year's earnings. What is your estimete of Chiptech's intrinale vslue per
shsre? (hint: Carefully prepore o table of Chiptech's eomings snd dividends for esch of the next three years. Poy close ettent on to the
chsnge in the psyout rato in t-2)(Round your answers to 2 decimal places.)
Answer is complete but not entirely correct.
c. No one elae in the market percelves the threat to Chlatech's market. In foct, you sre confident thest no one else will become swore of
the change In Chlptech's competrve ststus until the competitor firm publicly snnounces tos discovery neser the end of yeer 2. What wl
be the rate of return on Chiptech stock In the coming yesr (Le., between t-0 snd t=1)?[hint for paits c through e: Fsy stention to
when the market catches an to the new stustian. A tsble of dlwidends snd morket prices over time might he p.)(Do not round
Intermediate calculations. Negatlve amount should be indicsted by a minus slgn. Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
d. What will be the rate of return on Chlatech atock in the second year (between t=1 sond t=2)?(Do not round Intermediate
calculations. Negative amount should be lndicsted by a mlinus sign. Round your answer to 2 declmal places.)
Answer is complete but not entirely correct.
e. What will be the rote of return an Chiptech stock in the third yesr |between t =2 snd t=3;?(Do not round Intermedleste
calcul stions. Negatlive amount should be lindlcsted by a minus sign. Round your anawer to 2 decimal places.)
Answer is complete but not entirely correct.
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