1. Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $51.15 per share. She expects the price of the stock to rise to $59.59 over the next 3 years. During that time she also expects to receive annual dividends of $6.15 per share.

a. What is the intrinsic worth of this stock, given a required rate of return of 9%?

b. What is its expected return?

2. Wilbur and Orville are brothers. They're both serious investors, but they have different approaches to valuing stocks. Wilbur, the older brother, likes to use the dividend valuation model. Orville prefers the free cash flow to equity valuation model. As it turns out, right now, both of them are looking at the same stockWright First Aerodynmaics, Inc. (WFA). The company has been listed on the NYSE for over 50 years and is widely regarded as a mature, rock-solid, dividend-paying stock. The brothers have gathered the following information about WFA's stock:

Current dividend (D0)=$3.30/share

Current free cash flow (FCF0)=$1.5 million

Expected growth rate of dividends and cash flows (g)=7%

Required rate of return (r)=16%

Shares outstanding=600,000 shares

How would Wilbur and Orville each value this stock?