Sorvino Co.is expected to offer a dividend of $3.2 per share per year forever.The required rate of return on Sorvino stock is 13 percent.Thus, the price of a share of Sorvino stock, according to the dividend discount model, is $____.

Question

Quizplus · Accepted Answer

The dividend discount model formula is: Price = Dividend / (Required Rate of Return - Growth Rate).

In this case, the dividend is $3.2 per share, the required rate of return is 13%, and the growth rate is assumed to be zero since the dividend is expected to remain the same forever.

Thus, the price of a share of Sorvino stock can be calculated as: Price = $3.2 / (0.13 - 0) = $24.62.

Therefore, the best choice is C) 24.62.