Carson Inc. stock is currently selling at $40 per share (its equilibrium price). The firm’s long run growth is expected to remain 7% per year, forever. Last year’s EPS were $4 and the dividend payout ratio is 50 percent. The risk free rate is 8 percent, and the market risk premium is 6 percent. If beta increases by 50 percent, by how much will the stock price change? (Assume all other factors remain constant).Please show your work.
(a) Price rises $12.50
(b) Price rises $11.56
(c) Price drops $7.07
(d) Price drops $11.56
(e) None of the above