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 $$1\mathrm{.}40$ a share last year, and just paid out a dividend of $$0\mathrm{.}63$ per share. Investors believe the

company plans to maintain its dividend payout ratio at $45\%.$ ROE equals $24\%.$ 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 $15\%,$ and the company has just

gone ex$-$dividend $($i$.$e$.,$ the next dividend will be paid a year from now, at $t=1).($Do not round Intermedlate calculatlons. Round your

answer to $2$ declmal places.$)$

Market price of Chiptech stock

b$.$ Suppose you discover that Chiptech's competitor has developed a new chip that will eliminate Chiptech's 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 $15\%,$ and, because of falling demand for its product, Chiptech will

decrease the plowback ratio to $0\mathrm{.}45.$ 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 $55\%$ of that year's earnings. What is your estimate of Chiptech's 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 $t=2.)($Round your onswers to $2$ declmal ploces.$)$

c$.$ No one else in the market perceives the threat to Chiptech's market. In fact, you are confident that no one else will become aware of

the change in Chiptech's competitive status until the competitor firm publicly announces its discovery near the end of year $2.$ What will

be the rate of return on Chiptech stock in the coming year $($i$.$e$.,$ between $t=0$ and $t=1)?($Hint for parts $c$ through e: Pay attention to

when the market catches on to the new situation. A table of dividends and market prices over time might help.$)($Do not round

Intermedlate calculatlons. Negatlve amount should be Indlcated by a mlnus slgn$.$ Round your answer to $2$ decimal places.$)$

Rate of return

d$.$ What will be the rate of return on Chiptech stock in the second year $($between $t=1$ and $t=2)?($Do not round Intermedlate

calculations. Negatlve amount should be Indlcated by a minus slgn$.$ Round your answer to $2$ declmal places.$)$

Rate of return

e$.$ What will be the rate of return on Chiptech stock in the third year $($between $t=2$ and $t=3)?($Do not round Intermedlate

calculatlons. Negatlve amount should be Indlcated by a minus slgn$.$ Round your answer to $2$ declmal places.$)$

Rate of return