XYZ Company Has Expected Earnings of $3

Multiple Choice

XYZ Company has expected earnings of $3.00 for next year and usually retains 40 percent for future growth. Its dividends are expected to grow at a rate of 10 percent indefinitely. If an investor has a required rate of return of 15 percent, what price would he be willing to pay for XYZ stock?

A) $12.50
B) $25.00
C) $30.00
D) $36.00