Final answer:
The projected selling price of the stock, which has a current price of $25.00 and an 18% estimated total return including a $1 dividend, is calculated to be $28.50, which is the sum of the current price and the projected capital gain.
Step-by-step explanation:
The current price of a share of stock is $25.00, with an estimated total return of 18% which includes a dividend of $1 per year. To calculate the projected selling price of the stock, you first account for the dividend, which has already been given as $1. Then, to calculate the capital gain, you take the remainder of the total return after accounting for the dividend. Since the total estimated return is 18%, and 4% ($1 out of $25) is from the dividend, the capital gain is estimated to be 14%. Therefore, you multiply the current stock price by 1 plus the percentage capital gain:
Projected capital gain = $25.00 * 14% = $3.50.
Add the capital gain to the current price to find the projected selling price:
Projected selling price = Current price + Projected capital gain = $25.00 + $3.50 = $28.50.
So, the correct answer is (b) $28.50.