Mother and Daughter Enterprises is a relatively new firm that appears to be on the road to great success. The company paid its first annual dividend yesterday in the amount of $.28 a share. The company plans to double each annual dividend payment for the next three years. After that time, it is planning on paying a constant $1.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 11.5%?

A) $9.41
B) $11.40
C) $11.46
D) $11.93
E) $12.43

To calculate the present value of the stock, we use the dividend discount model for a period of growth followed by a period of constant dividends. The dividends for the next three years are as follows: Year 1: $0.28 * 2 = $0.56 Year 2: $0.56 * 2 = $1.12 Year 3: $1.12 * 2 = $2.24 After year 3, the dividends are constant at $1.50 per share indefinitely. The present value of the dividends for the first three years can be calculated using the formula for the present value of a future payment: PV = FV / (1 + r)^n where PV is the present value, FV is the future value (dividend), r is the rate of return, and n is the number of years. PV of Year 1 Dividend = $0.56 / (1 + 0.115)^1 = $0.502 PV of Year 2 Dividend = $1.12 / (1 + 0.115)^2 = $0.898 PV of Year 3 Dividend = $2.24 / (1 + 0.115)^3 = $1.595 The present value of the constant dividends starting from year 4 can be calculated using the formula for the present value of a perpetuity: PV = D / r where D is the constant dividend and r is the rate of return. However, since these dividends start in year 4, we need to discount this perpetuity back to today's value: PV of Perpetuity starting Year 4 = ($1.50 / 0.115) / (1 + 0.115)^3 = $9.348 The total value of the stock today is the sum of the present values of the dividends for the first three years and the present value of the perpetuity: Total PV = $0.502 + $0.898 + $1.595 + $9.348 = $12.343 Since the options are rounded, the closest value to $12.343 is $12.43, which is option E.