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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
a. What is the market price of Chiptech stock? The required return for the computer chip industry is
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
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
d. What will be the rate of return in the second year (between
e. What will he the rate of return in the third year [between
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