Mehmet is considering an investment in Cho's Korean Restaurant. Mehmet is planning to buy the stock today, hold it for 3 years, and then expects to sell the stock for $40 at the end of 3 years. Mehmet expects the first dividend to be $1.00, the second dividend to be $1.50, and the third dividend to be $2.25. If Mehmet requires a 17% rate of return, what is the value of Cho's Korean Restaurant to Mehmet today?
A)$28.33
B)$26.93
C)$13.24
D)$24.70

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the future cash flows, discounted at a rate of 17%, is $28.33.

Mehmet Is Considering an Investment in Cho's Korean Restaurant