Question

In: Finance

Melissa Cutt is thinking about buying some shares of EZLawn​ Equipment, at $33.74 per share. She...

Melissa Cutt is thinking about buying some shares of EZLawn​ Equipment, at $33.74 per share. She expects the price of the stock to rise to $43.94 over the next 3 years. During that time she also expects to receive annual dividends of $5.11 per share.

a. What is the intrinsic worth of this​ stock, given a required rate of return of 12%​?

b. What is its expected​ return?

Solutions

Expert Solution

a. Intrinsic worth of stock =PV of dividend+PV of Price at the end of 3 years
=5.11*((1-(1+12%)^-3)/12%)+43.94/(1+12%)^3 =43.55

b. Expected Return using financial calculator
N=3;PMT=5.11;PV=-33.74;FV=43.94;CPT I/Y =23.21%
Expected Return =23.21%

jeff jeffy answered 2 years ago
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