Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $47.67 per share. She expects the price of the stock to rise to $57.84 over the next 3 years. During that time she also expects to receive annual dividends of $4.93 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 11%? b. What is its expected return?

Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $47.67 per share. She expects the price of the stock to rise to $57.84 over the next 3 years. During that time she also expects to receive annual dividends of $4.93 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 11%? b. What is its expected return?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

#8 investment

Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at

$47.67

per share. She expects the price of the stock to rise to

$57.84

over the next

years. During that time she also expects to receive annual dividends of

$4.93

per share.

a. What is the intrinsic worth of this stock, given a required rate of return of

11%?

b. What is its expected return?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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