Ask Question
3 December, 20:06

West Coast Ltd. wants to issue preferred stock that pays an annual dividend of $6.80 a share. The company has determined that stocks with similar characteristics provide a 12.25 percent rate of return. What should the offer price be

+5
Answers (1)
  1. 3 December, 22:51
    0
    The offer price will be $55.51

    Explanation:

    The constant cash flow over a indefinite period of time is the perpetuity. The dividend payment on the preferred is also considered as perpetuity because it pays the constant amount of dividend and there is no time limit for the payment.

    Value of the preferred share can be determine by following formula

    Value of Perpetuity / Cash flow / required rate of return

    Price of share = Dividend Payment / Rate of return

    Price of share = $6.8 / 12.25% = $55.51
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “West Coast Ltd. wants to issue preferred stock that pays an annual dividend of $6.80 a share. The company has determined that stocks with ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers