McNally Motors Has Yet to Pay a Dividend on Its

Multiple Choice

McNally Motors has yet to pay a dividend on its common stock. However, the company expects to pay a $1.00 dividend starting two years from now . Thereafter, the stock's dividend is expected to grow at a constant rate of 5 percent a year. The stock's beta is 1.4, the risk-free rate is rRF = 0.06, and the expected market return is rM = 0.12. What is the stock's expected price four years from now, i.e., what is ?

A) $10.63
B) $12.32
C) $11.87
D) $13.58
E) $11.21