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 46.
Stock price in 7 years, i.e., what is

Question

Quizplus · Accepted Answer

The correct answer is A.The expected stock price in 7 years can be calculated using the constant growth dividend discount model:P7 = D1 * (1 + g) / (rs - g)where:D1 = expected year-end dividendg = expected constant growth raters = required returnPlugging in the given values, we get:P7 = $1.60 * (1 + 0.06) / (0.11 - 0.06) = $37.52