Question

Caspian Sea is considering raising $18.00 million by issuing preferred stock. They believe the market will use a discount rate of 9.48% to value the preferred stock which will pay a dividend of $2.24. How many shares will they need to issue?

Answer format: Currency: Round to: 0 decimal places.

Answer 1

Price of the Preferred share

Price of the Preferred stock = Annual preferred dividend / Discount rate

Price of the Preferred stock = $2.24 / 0.0948

Price of the Preferred stock = $23.62869198 per share

Number of shares to be issued

Number of shares to be issued = Amount raised / Price of the Preferred share

Number of shares to be issued = $18,000,000 / $23.62869198 per share

Number of shares to be issued = 761,786 Shares

Therefore, the Number of shares to be issued is 761,786 Shares