Question

A Tech Company is considering raising $31.00 million by issuing preferred stock. They believe the market will use a discount rate of 10.90% to value the preferred stock which will pay a dividend of $2.02. How many shares will they need to issue?

Answer 1

Given

Capital Required = 31 Million

Diecount rate =10.90%

Dividend = 2.02

An investor will get 2.02 dividend till perpetuity and it remain contant. So we need to calculate the Current price of preffered stock using Gordan growth formula

There is no growth in question so.

= 2.02 / 0.109

Price of preferred stock = 18.5321 approx

-- If company wants to raise 31 million and the price at which the share would be sell at 18.5321

No of share = Total Capital required / Price per share

= 31000000 / 18.5321

No of shares required to be issue d= 1,672,773 approx