(Please use a math, finance equation and/ or formula and show your work. DONT USE A SHEET CHART, EXCEL, OR GRAPH)

12) ACME Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect ACME to begin paying dividends, beginning with a dividend of $2.50 coming 3 years from today. The dividend will grow rapidly at a rate of 25% per year during Years 4 and 5, but after Year 5, growth be a constant 5% per year. If the required return on ACME is 12%, what is the dividend yield once the firm reaches constant growth?

7.00%

7.55%

6.36%

6.02%

7.15%