MATH SOLVE

3 months ago

Q:
# Sorenson Corp.’s expected year-end dividend is D1 = $4.00, 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 Pˆ 7?

Accepted Solution

A:

Answer:$93.80 Step-by-step explanation:Data provided :Year end dividend, D1 = $4.00Required return, rs = 11% = 0.11Dividend yield = 6% = 0.06now,Growth rate, g = Required return - Dividend yield= 11% - 6%= 5% = 0.05Thus,Sorenson’s expected stock price in 7 years = [tex]\frac{D1(1+g)^n}{rs-g}[/tex]here, n is the number of years i.e 7therefore,Sorenson’s expected stock price in 7 years = [tex]\frac{\$4.00\times(1+0.05)^7}{0.11-0.05}[/tex]orSorenson’s expected stock price in 7 years = $93.80