A firm with return on equity 20% and beta 0.9 just distributed all its earnings ($12 per share) as dividends. The expected market return is 15% and the risk-free rate is 5%. The firm can keep distributing all its earnings to shareholders each year or retain 25% for reinvestment.

What is the price of the stock, if all earnings are distributed as dividends moving forward?

a.

$64.3

b.

$133.3

c.

$120

d.

$60

e.

$71.4

f.

$85.7