Elona has just invested in the stock of Desla Limited and her intended investment period will be 4 years. Based on her own analysis, she expects that annual dividend of Desla Limited will be $20 per share next year and it will increase by 12% in each of the following three years. She anticipates the share price will be $936.70 at the end of the fourth year and she will sell the Desla share, right after the dividend is received.

a) If Elona's required rate of return is 15%, determine the amount Elona has to pay for the Desla share today. 

b) If Elona does purchase the Desla share at the price you calculated in (a) and she sells the share at the end of the third year (instead of at the end of fourth year) for $686.4, Determine the return of this investment.

Answer rating: 100% (QA)

a To calculate the amount Elona has to pay for the Desla share today we need to find the present value of all the future cash flows dividends and the ... View the full answer