Answer:
The answer is "Option c"
Explanation:
The Dividend payout ratio is 40% so that EPS* is the dividend payout ratio of the company:
[tex]= 6 \times 40 \% \\\\= \$ \ 2.40[/tex]
Inventory market value:
[tex]= Dividend \times \frac{(1+g)}{(r-g)}[/tex]
Where r = return rate is needed
g= growth [tex]= 5.25\% = \frac{5.25}{100} = 0.0525[/tex]
[tex]\to 22.86 = \frac{(2.4 \times (1+g))}{ r-0.0525}\\\\\to 22.86 = \frac{(2.4 \times (1+0.0525))}{r-0.0525}\\\\\to (22.86 \times r)-(22.86 \times 0.0525)=2.526\\\\\to (22.86 \times r)-1.20015=2.526\\\\\to 22.86r=3.72615\\\\\to r=0.1630\\\\\to r=16.30 \%[/tex]
