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27 August, 17:26

A corporation plans to issue perpetual preferred stock with an annual dividend of $6.50 per share The required return on this preferred stock is 6.5% At what price should the stock sell?

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Answers (2)
  1. 27 August, 17:51
    0
    The stock should sell at $100

    Explanation:

    Value of Stock Can be determined by calculating the present value of the future dividend associated with the stock.

    As preferred stock receives perpetual dividends we will use the perpetual valuation formula, which is as follow

    Value of Stock = Dividend / Required rate of return

    Value of Stock = $6.50 / 6.5%

    Value of Stock = $100 per share

    The stock should sell at $100
  2. 27 August, 18:25
    0
    The stock should sell at $100

    Explanation:

    According to the given data we have the following:

    annual dividend=$6.50 per share

    required return=6.5%

    In order to calculate at what price should the stock sell we would have to use the following formula:

    Dividend return=annual dividend

    stock price

    0.065=$6.50

    stock price

    stock price=$6.50

    0.065

    stock price=$100

    The stock should sell at $100
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