Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.

If the required return on this preferred stock is 6.5%, at what price should the stock sell?

Preferred stock price is $115.38

Explanation:

stock price = dividend/required rate of return

dividend is $7.50

required rate of return is 6.5%

stock price = $7.50/6.5%

stock price=$7.50/0.065

stock price=$ 115.38

The most that a rational investor for the preferred stock of Molen Inc is $115.38 as that reflects the dividend earning capacity of the stock upon which investors base their pricing judgement.