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19 July, 12:26

Caspian Sea is considering raising $33.00 million by issuing preferred stock. They believe the market will use a discount rate of 11.87% to value the preferred stock which will pay a dividend of $3.23. How many shares will they need to issue

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  1. 19 July, 15:18
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    1,212,723 shares

    Explanation:

    Given that,

    Value of issuing preferred stock = $33,000,000

    Discount rate = 11.87%

    Dividend paid = $3.23

    Price of preferred stock:

    = Annual dividend : discount rate

    = $3.23 : 0.1187

    = $27.2115

    Shares will they need to issue:

    = Value of issuing preferred stock : Price of preferred stock

    = $33,000,000 : $27.2115

    = 1,212,723
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