Question
The Rapidly Growing Company has 100,000 9.0% dividend preferred shares issued and outstanding. The preferred shares...
The Rapidly Growing Company has 100,000 9.0% dividend preferred shares issued and outstanding. The preferred shares are participating, have a par value of $100, and mature in 5 years. The company expects to grow at 3 percent forever. If investors require a 12 percent return, what will the preferred shares sell for in the market today?
Homework Answers
Answer #1
9% dividend Preferred shares issued for = $ 100 per share
No of Preferred shares = 100,000
Total Value of Preferred shares = 100,000 shares*$100 per share
= $10,000,000
Annual dividend on Preferred shares = $10,000,000*9%
= $ 900,000
As Preferred Stocks are paid Fixed dividends, growth rate of earnings are irrelevant for it
Maturity (n) = 5
Required return = r = 12%
Calculating the Price of Preffered STock today:
Price = $ 3244,298.58 + 5674,268.56
Price = $ 8,918,567.14
No oF shares = 100,000
Price per share = $ 8,918,567.14/100,000
= $ 89.19 per share
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