EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 7, Problem 5PROB
Summary Introduction
The
Preferred stock as the name suggest has higher preference over common stock. The preferred stockholders get annual dividends like bond holders and have higher priority. Value of the preferred stock also depends on the dividends paid and the required rate of return on the same.
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Out-of-Sight Telecommunications (OST) has preferred stock outstanding with a par value of $40 per share that pays an annual dividend equal to 5 percent. (a) If investors who purchase similar investments require a 10 percent return, what is the market value of OST’s preferred stock? (b)What would be the market value of the stock if investors require an 8 percent return?
A preferred stock from Duquesne Light Company (DQU-PRA) pays $2.10 in annual dividends. If the required rate of return on the preferred stock is 5.4 percent, what is the fair present value of the stock?
Please show the solution/ formula used for me so i'll be able to understand it clearly. Thank you
Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of
$60
and pays an annual dividend of
$5.60
per share. Similar-risk preferred stocks are currently earning an annual rate of return of
7.1%.
a. What is the market value of the outstanding preferred stock?
b. If an investor purchases the preferred stock at the value calculated in part
a,
how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to
8.6%?
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- Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $70 and pays an annual dividend of $4.50 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 11.5%. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 13.2%? ______________________________________________________________________________ a. The market value of the outstanding preferred stock is $_________per share. (Round to the nearest cent.) b. If the required return on similar-risk preferred stocks has risen to 13.2%, the value of the stock will be $_______ per share. (Round to the nearest cent.) If an investor purchased the preferred stock at the value calculated in part…arrow_forward(please use Excel) Preferred stock B sells for $45 in the market and pays an annual dividend of $4.60.a) If the market required yield is 10 percent, what is the value of the stock to investors?b) Should investors buy the shares? Include reasonsarrow_forwardEkblad Corp. preferred stock is selling for $100 per share in the market. This preferred stock has a par value of $120 and a dividend rate of 15 percent. What is the current yield on the stock? If an investor has a required rate of return of 18 percent, what is the value of the stock for that investor? Should the investor acquire the stock? Explain why preferred stock is referred to as a hybrid security.arrow_forward
- Assume that a firm can issue preferred stock that has a $70 par value and pays a 15.0% annual dividend each year. The firm's investment bankers believe that investors will be willing to pay $84.00 per share and that flotation costs will be equal to $8.45 per share. Given this information, determine the difference between the investor's required rate of return, and the firm's cost of preferred stock. O 1.969%. O 1.398% O 1.683% O 2.541% O 2.224%arrow_forwarda) If a preferred stock pays an annual dividend of $6 and investors can earn 10 percent on alternative and comparable investments, what is the maximum price that should be paid for this stock? b) If the preferred stock in part (a) had a call feature and investors expected the stock to be called for $100 after ten years, what is the maximum price that investors should pay for the stock? Please provide the detailed calculation of part barrow_forward(Preferred stock valuation) Pioneer's preferred stock is selling for $42 in the market and pays a $2.50 annual dividend. a. If the market's required yield is 8 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock?arrow_forward
- Tando Airlines has preferred stock outstanding that has a par value equal to $100. Preferred dividend payments equal 8 percent of the stock's par value. If Tando's preferred stock currently sells for $160,, what is the rate of return that preferred stockholders earn? What portion of this return is the dividend yield and what portion is the capital gains yield? (hint: think about the growth rate that is associated with preferred stock.)arrow_forward(Preferred stock valuation) Pioneer's preferred stock is selling for $30 in the market and pays a $3.30 annual dividend. Chapter a. If the market's required yield is 9 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock? Chapter a. The value of the stock for that investor is $ per share. (Round to the nearest cent.) b. Should the investor acquire the stock? (Select from the drop-down menus.) Chapter The investor acquire the stock because it is currently V in the market. Chapter 1 should not should I Chapter D Chapter I Chapter Сoprigl Terms of Enter your answer in the answer box. Save for Later ..pptx APRarrow_forwardWhat is the current per-share value of JRM Corporation to an investor who requires a 0.17 annual rate of return, if JRM's current per-share dividend is $6 and is expected to remain at grow at 0.09 for the foreseeable future? what is the price of the stockarrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY