Let's assume thatyou're thinking about buying stock in West Coast Electronics. So far in youranalysis, you've uncovered the followinginformation: The stock pays annual dividends of $5.12 a share indefinitely. It trades at aP/E of 8.3 times earnings and has a beta of 1.14. Inaddition, you plan on using arisk-free rate of 4.00% in theCAPM, along with a market return of 11%. You would like to hold the stock for 3years, at the end of which time you think EPS will be $9.95

a share. Given that the stock currently trades at $64.04, use the IRR approach to find thissecurity's expected return. Now use the dividend valuation model(with constantdividends) to put a price on this stock. Does this look like a good investment toyou? Explain.

Thissecurity's expected return(IRR) is ______%

The value of the stock is $___?

Using the dividend valuation model(with constantdividends), the value of the stock is $

___?

Does this look like a good investment toyou? Explain. choose the best answer

A.

No, the stock looks like it would not make a good investment. It has a justified price that is below its current marketprice, and its expected return is lower than the required return.

B.

Yes, the stock looks like it would make a good investment. It has a justified price that is below its current marketprice, and its expected return is lower than the required return.

C.

No, the stock looks like it would not make a good investment. It has a justified price that is above its current marketprice, and its expected return is higher than the required return.

D.

Yes, the stock looks like it would make a good investment. It has a justified price that is above its current marketprice, and its expected return is higher than the required return.