Question

Barnes Air Conditioning Inc. has two classes of preferred stock: floating rate preferred stock and straight (normal) preferred stock. Both issues have a par value of $100. The floating-rate preferred stock pays an annual dividend yield of 6 percent, and the straight preferred stock pays 7 percent. Since the issuance of the two securities, interest rates have gone up by 1.00 percent for each issue. Both securities will pay their year-end dividend today.

**a.** What is the price of the floating-rate
preferred stock most likely to be? **(Do not round
intermediate calculations and round your answer to 2 decimal
places.)
**

**b.** What is the price of the straight preferred
stock likely to be? **(Do not round intermediate calculations
and round your answer to 2 decimal places.)
**

Answer #1

Barnes Air Conditioning Inc. has two classes of preferred stock:
floating rate preferred stock and straight (normal) preferred
stock. Both issues have a par value of $100. The floating-rate
preferred stock pays an annual dividend yield of 5 percent, and the
straight preferred stock pays 6 percent. Since the issuance of the
two securities, interest rates have gone up by 1.00 percent for
each issue. Both securities will pay their year-end dividend
today.
a. What is the price of the...

Barnes Air Conditioning Inc. has two classes of preferred stock:
floating rate preferred stock and straight (normal) preferred
stock. Both issues have a par value of $100. The floating rate
preferred stock pays an annual dividend yield of 4 percent, and the
straight preferred stock pays 5 percent. Since the issuance of the
two securities, interest rates have gone up by 2.50 percent for
each issue. Both securities will pay their year-end dividend
today.
What is the price of the...

Arondale Aeronautics has perpetual preferred stock outstanding
with a par value of $100. The stock pays a quarterly dividend of
$3.00, and its current price is $88. What is its nominal annual
rate of return? Do not round intermediate calculations. Round your
answer to two decimal places. What is its effective annual rate of
return? Do not round intermediate calculations. Round your answer
to two decimal places.

North Pole Cruise Lines issued preferred stock many years ago.
It carries a fixed dividend of $9 per share. With the passage of
time, yields have soared from the original 10 percent to 7 percent
(yield is the same as required rate of return).
a. What was the original issue price? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
b. What is the current value of this preferred stock? (Do not
round intermediate calculations. Round your...

Smiling Elephant, Inc., has an issue of preferred stock
outstanding that pays a $5.00 dividend every year, in
perpetuity.
If this issue currently sells for $80.10 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.)
Required return
%

X-Tech Company issued preferred stock many years ago. It carries
a fixed dividend of $6 per share. With the passage of time, yields
have soared from the original 8 percent to 13 percent (yield is the
same as required rate of return).
a. What was the original issue price? (Do
not round intermediate calculations. Round your answer to 2 decimal
places.)
b. What is the current value of this preferred
stock? (Do not round intermediate calculations. Round your
answer...

Here are forecasts for next year for two stocks:
Stock A
Stock B
Return on equity
15
%
14
%
Earnings per share
$
2.00
$
1.50
Dividends per share
$
1.00
$
1.00
a. What are the dividend payout ratios for each
firm? (Do not round intermediate calculations. Enter your
answers as a percent rounded to the nearest whole
number.)
b. What are the expected dividend growth rates for
each stock? Assume dividend has a steady growth for both...

HBM, Inc has the following capital structure:
Assets
$
600,000
Debt
$
270,000
Preferred stock
90,000
Common stock
240,000
The common stock is currently selling for $17 a share, pays a
cash dividend of $0.95 per share, and is growing annually at 8
percent. The preferred stock pays a $8 cash dividend and currently
sells for $86 a share. The debt pays interest of 6.5 percent
annually, and the firm is in the 30 percent marginal tax
bracket.
What is...

HBM, Inc has the following capital structure: Assets $ 600,000
Debt $ 240,000 Preferred stock 60,000 Common stock 300,000 The
common stock is currently selling for $12 a share, pays a cash
dividend of $0.55 per share, and is growing annually at 4 percent.
The preferred stock pays a $9 cash dividend and currently sells for
$96 a share. The debt pays interest of 8.5 percent annually, and
the firm is in the 30 percent marginal tax bracket.
What is...

X-Tech Company issued preferred stock many years ago. It carries
a fixed dividend of $8 per share. With the passage of time, yields
have soared from the original 15 percent to 18 percent (yield is
the same as required rate of return).
a. What was the original issue price? (Do
not round intermediate calculations. Round your answer to 2 decimal
places.)
Original issue price
b. What is the current value of this preferred
stock? (Do not round...

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