On a certain date, Kastbro has a stock price of $37.50, pays a dividend of $0.64, and has anequity cost of capital of 8%. An investor expects the dividend rate to increase by 6% per year inperpetuity. He then sells all stocks that he owns in Kastbro. Given Kastbroʹs share price, was thisa reasonable action?A) No, since the constant dividend growth rate gives a stock estimate of $37.50.B) No, since the constant dividend growth rate gives a stock estimate greater than $37.50.C) Yes, since the constant dividend growth rate gives a stock estimate greater than $37.50.D) No, since the difference between his calculated stock price and the actual stock price mostlikely indicates that his estimate of dividend growth rate was incorrect.
