Sorenson Corp.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected Stock price in 7 years, i.e., what is $ \hat{\mathrm{P}}_{7} $ ?

Question

Quizplus · Accepted Answer

The correct answer is A because the expected stock price in 7 years is $37.52. This can be calculated using the formula:$ \hat{\mathrm{P}}_{7} = \frac{D_1 \times (1 + g)^7}{rs - g} $where:$ D_1 $ is the expected year-end dividend$ g $ is the expected constant growth rate$ rs $ is the required returnPlugging in the given values, we get:$ \hat{\mathrm{P}}_{7} = \frac{1.60 \times (1 + 0.06)^7}{0.11 - 0.06} = 37.52 $

Sorenson Corp P^7 \hat{\mathrm{P}}_{7} P^7​ ? A) $37

Sorenson Corp $\hat{\mathrm{P}}_{7}$ ?
A) $37