Sedgwick, Inc. has a 12% required rate of return. It does not expect to initiate dividends for 15 years, at which time it will pay $2.00 per share in dividends. At that time, Sedgwick expects its dividends to grow at 7% forever. What is an estimate of Sedgwick's price in 15 years (P₁₅) if its dividend at the end of year 15 is $2.00? A) $42.80 B) $33.40 C) $31.20 D) $30.00

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Quizplus · Accepted Answer

The price in 15 years can be calculated using the Gordon Growth Model: P = D / (r - g). Here, D = $2.00, r = 12%, and g = 7%. So, P = 2 / (0.12 - 0.07) = $42.80.