Blanton Consulting Inc just paid a $2.00 per share dividend. The firm

Blanton Consulting Inc just paid a $2.00 per share dividend. The firm also announced that it anticipates a long-run growth in dividends of 3% per year.

Inflation is also expected to be 3% per year, and the firms required rate of return on common stock is 11%. What is the current price per share of the firm’s stock?
A) $14.71
B) $14.29
C) $25.75
D) $25.00

ANSWER

C
Explanation: C) PV = (Div one)/(r-g) = $2*(1.03 )/(.11-.03 ) = $25.75.