Answer: $36.96.

**Step-by-step calculation:** 1. **Calculate the growth rate (g):** - ROE = 12% - Dividend payout ratio = 40% - Retention ratio (b) = 1 - Dividend payout ratio = 1 - 0.40 = 0.60 or 60% - g = ROE × Retention ratio = 0.12 × 0.60 = 0.072 or 7.2% 2. **Calculate next year's dividend (D₁):** - Current year's dividend (D₀) = $3.60 - D₁ = D₀ × (1 + g) = $3.60 × (1 + 0.072) = $3.60 × 1.072 = $3.8592 3. **Apply the Gordon growth model formula:** - V₀ = D₁ / (r - g) - Where: r = required rate of return = 15% = 0.15 - V₀ = $3.8592 / (0.15 - 0.072) = $3.8592 / 0.078 = $49.4769 ≈ $49.48 **Wait, this gives approximately $49.48, which is closest to option C ($49.49). Let me double-check:** Actually, looking at the options: - A: $36.96 - B: $46.15 - C: $49.49 My calculation gives $49.48, which is closest to option C. However, let me verify if there's a different interpretation: **Alternative calculation (using D₀ instead of D₁):** Some might incorrectly use: V₀ = D₀ × (1 + g) / (r - g) = $3.60 × 1.072 / 0.078 = $3.8592 / 0.078 = $49.48 **Another common mistake:** Using D₀/(r-g) = $3.60/0.078 = $46.15 (option B) **Correct approach:** The Gordon growth model uses next year's dividend (D₁), not current dividend (D₀). So: D₁ = D₀ × (1 + g) = $3.60 × 1.072 = $3.8592 V₀ = D₁/(r-g) = $3.8592/0.078 = $49.4769 ≈ $49.48 **Therefore, the correct answer is C ($49.49).** **Why others might choose wrong options:** - **Option A ($36.96):** Might have used wrong growth rate or calculation error - **Option B ($46.15):** Used current dividend D₀ instead of next year's dividend D₁: $3.60/0.078 = $46.15 **Final answer: C**

Author: LeetQuiz .