Question

(Preferred stock value) McDonald’s Corp. preferred stock pays an annual dividend of $5 per share. Calculate the value of one share to an investor who requires a rate of return of: (USING EXCEL)

a. 6%

b. 9%

c. 12%

d. 15%

Answer 1

Annual dividend = $ 5 per share

Value of one share = annual dividend / rate

The calculations are shown in the excel table below:

	A	B	C	D
1		Rate	Dividend	Dividend/rate
2	a	0.06	5	83.33
3	b	0.09	5	55.56
4	c	0.12	5	41.67
5	d	0.15	5	33.33

a) When rate is 6% , we have calculated cell C2/cell B2 = 5/0.06 = 83.33 $ (answer)

b) When rate is 9% , we have calculated cell C3/cell B3 = 5/0.09 = 55.56 $ (answer)

c) When rate is 12% , we have calculated cell C4/cell B4 = 5/0.12 = 41.67 $ (answer)

d) When rate is 15% , we have calculated cell C5/cell B5 = 5/0.15 = 33.33 $ (answer)