Please explain solution

ABC Inc. just paid a dividend of $1.00 this year. The stock price is $15.43 currently. The market risk premium is 15% and the risk-free rate is 6%. What will the price of ABC's stock be if the dividend growth increases by 25%?

$20.00

Rationale:

g increases from 8% to 10%

$15.43

Rationale:

g increases from 8% to 10%

$12.50

Rationale:

g increases from 8% to 10%

$22.00

Correct Answer

$22.00