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# Let's assume that you're thinking about buying stock in West Coast Electronics. So far in your analysis, you've uncovered the following information:...

Let's assume that​ you're thinking about buying stock in West Coast Electronics. So far in your​ analysis, you've uncovered the following​ information: The stock pays annual dividends of \$5.45 a share indefinitely. It trades at a​ P/E of 11.5 times earnings and has a beta of 1.15. In​ addition, you plan on using a​ risk-free rate of4.00​%in the​ CAPM, along with a market return of 11​%.You would like to hold the stock for 3​ years, at the end of which time you think EPS will be \$8.76 a share. Given that the stock currently trades at \$76.02, use the IRR approach to find this​ security's expected return. Now use the dividend valuation model​ (with constant​ dividends) to put a price on this stock. Does this look like a good investment to​ you? Explain.

A. This​ security's expected return​ (IRR) is ____% (round to two decimals)

B. The value of the stock is \$ ____ (nearest cent)

C. Using the dividend valuation model​ (with constant​ dividends), the value of the stock is ​\$ ___ (Nearest cent)

D.

Does this look like a good investment to​ you? Explain. ​ (Select the best choice​below.)

A.

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

B.

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

C.

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

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