Homer, Inc

Homer, Inc. is expected to pay dividends of $100 per share at the end of one year and $100 at the end of the second year. The dividend in the second year is a liquidating dividend and the firm will cease to exist. Investors require a 12% return on investments of this type. There are 100 shares of stock outstanding. The firm is considering an alternate dividend policy that will pay out $120 in dividends per share the first year. Under the alternative plan, any shortfall in funds will be raised by selling new equity. There are no taxes, transaction costs, or other market imperfections.

What will be Homer's stock price once the alternate dividend plan is adopted?

A) $164.26
B) $167.73
C) $169.01
D) $172.54
E) $176.24