Savickas Petroleum's Stock Has a Required Return of 12%, and the Stock

Multiple Choice

Savickas Petroleum's stock has a required return of 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%