Answer:
C) $33.35
Explanation:
First, find the growth rate using retention rate and Return on new investment;
g= retention rate × return on new investment
Retention rate= (3.00 - 1.50) / 3.00 = 0.5
return on new investment = 15% or 0.15 as a decimal
g= 0.5 × 0.15 = 0.075 or 7.5%
Price (P0) = Div1 / (rE- g)
= 1.50 / (0.12 - 0.075) = 33.33
Therefore, the current value of the stock is 33.33 which is closest to 33.35.
