Question

The Fridge-Air Company's preferred stock pays a dividend of $4.50 per share annually. If the required...

The Fridge-Air Company's preferred stock pays a dividend of $4.50 per share annually. If the required rate of return on comparable quality preferred stocks is 14 percent, calculate the value of Fridge-Air's preferred stock.

Please Kindly Show Step By Step Using EXCEL Formula Thank you

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Answer #1

Calculate the value of the preferred stock as follows:

Return = Dividend / Value of preferred stock

14% = $4.50 / Value of preferred stock

Value of preferred stock = $32.14

Therefore, the value of preferred stock is $32.14.

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Open --> Excel --> Formulas --> PV function:

Calculation in Excel as follows:

Value is $32.14.

Note: Nper is assumed because it is a perpetual payment. Nper may be 100 or 1000.

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