The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows:

P0P0

= =

D1(rs g)D1(rs g)

Which of the following statements is true?

a- Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources.

b- Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.

c- Increasing dividends will always increase the stock price.

Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.25 at the end of the year. Its dividend is expected to grow at a constant rate of 6.00% per year. If Walters stock currently trades for $17.00 per share, what is the expected rate of return?

a- 692.65%

b- 19.24%

c- 612.49%

d- 1,563.53%

Walters dividend is expected to grow at a constant growth rate of 6.00% per year. What do you expect to happen to Walters expected dividend yield in the future?

a- It will decrease.

b- It will stay the same.

c- It will increase.