Corp.'s expected year-end dividend is D1 = $1.50, its required return is rS = 12.00%, its...
Corp.'s expected year-end dividend is D1 = $1.50, its required return is rS = 12.00%, its dividend yield is 8.00%, 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 P7?
Homework Answers
Please find the answer as follows:
D1 = 1.50
Required rate of return (rs) = 12.0%
Dividend Yield = D1/P0 = 8.0%
Growth rate: g = rs - yield = 12 - 8 = 4%
P0 = D1/(rs - g) = 1.5/(.12 - .04) = 18.75
P7 = P0*(1+g)^7 = 18.75*(1+.04)^7= $24.67
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