Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.20 dividend every year, in perpetuity. If this issue currently sells for $80.20 per share, what is the required return?

Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.20 dividend every year, in perpetuity. If this issue currently sells for $80.20 per share, what is the required return?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.20 dividend every year, in perpetuity.

If this issue currently sells for $80.20 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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