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SciFi Lab is a publicly owned company with several issues of capital stock outstanding. Over the...

SciFi Lab is a publicly owned company with several issues of capital stock outstanding. Over the past decade, the company has consistently earned modest profits and has increased its common stock dividend annually by 5 or 10 cents per share. Recently the company had had several important research successes and has introduced several new products that you believe will motivate future sales and profits to increase dramatically. You also expect a gradual increase in long-term interest rates from their present level of about 8 percent to, perhaps, 9 0r 10 percent.

On the basis of these forecasts, explain whether you would expect to see the market price of the following issues of SciFi capital stock increase or decrease. Explain your reasoning in each answer.

a. 10 percent, $100 par value preferred stock (currently selling at $80 per share)

b. $5 par value common stock (currently paying an annual dividend of $2.50 and selling at $40 per share).

c. 7 percent, $100 par value convertible preferred stock (currently selling at $95 per share).

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Answer #1

A.

The Value Of preferred Stock will decrease Significantly because the Company is providing higher rate of dividends to the Common stock holder

B.

The value Of common stock is obviously increase as the company is earning a large amount of the profits so it is relatable that it will get more profit

C.

The value of convertible preference share will slightly increase as it has option to became a common stock holder so it wont miss a chance to get higher amount of returns

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