The Required Return for Williamson Heating's Stock Is 12%, and the Stock

question 2

Multiple Choice

The required return for Williamson Heating's stock is 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30) 4 = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4, i.e., what is X?

• A) 5.17%
• B) 5.44%
• C) 5.72%
• D) 6.02%
• E) 6.34%