Answered: The Ola Nacho Company has preferred…

The Ola Nacho Company has preferred shareholders who earn an annual $2.50 dividend that has never changed. If the market premium is .15, what is the fair value of the preferred stock?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 4P

See similar textbooks

Related questions

Q: Lahhey Publishing wishes to estimate the value of its outstanding preferred stock. The preferred…

A: The formula used in the calculation of value of preferred stock is as follows: Market value of…

Q: The Turnip Company plans to issue preferred stock. Currently, the company’s stock sells for $115.…

A: Company needs to finance the assets for the purpose of regulating the business activities. These…

Q: Big Oil, Inc. has a preferred stock outstanding that pays a $7 annual dividend. If investors’…

A: Preferred stock annual dividend (D)= $7 Required rate of return ( r ) = 10% Market value or price…

Q: Buoyant Cruises plans to issue preferred stock with a $110 par value and a 6 percent dividend. Even…

A: Cost of preference dividend can be calculated using the following formula: Kp=DP where Kp=Cost of…

Q: Crane Luxury Liners has preferred shares outstanding that pay an annual dividend equal to $30 per…

A: Preference shares are referred to as the shares the stock of the corporation along with the…

Q: ABC Corporation pays a $10 per share annual dividend on its preferred stock. Given a 5% rate of…

A: The value of share shall be calculated by dividing the annual dividend by rate of return. Value of…

Q: Simmons Mineral Operations, Inc., (SMO) currently has 430,000 shares of stock outstanding that sell…

A: Given:

Q: Bedeker, Ic., has an issue of preferred stock outstanding that pays a $4.15 dividend every year in…

A: Preferred Stock are financial assets issued by entities whose holders are entitled following…

Q: Grill Works and More has 8 percent preferred stock outstanding that is currently selling for $49 a…

A: Calculation of Cost of Preferred Stock:

Q: Fegley, Incorporated, has an issue of preferred stock outstanding that pays a $3.80 dividend every…

A: Dividend Discount Model (DDM), popularly known as Gordon Model is used to find the intrinsic value…

Q: Eastern Oregon Power company has preferred stock outstanding that pays an annual dividend of $4.25.…

A: The share price is the current market price of the share. It is the price of the share at which any…

Q: ABC Inc.’s perpetual preferred stock sells for $56 per share, and it pays an $9 annual dividend. If…

A: Those stocks which are prioritized over common stocks at the time of payment of dividends but did…

Q: Steve purchases preferred stock in Berklee Corporation, with each share paying a $2.50 dividend.…

A: The preferred stocks are paying with fixed annual dividend to the preferred stockholders. The market…

Q: Buoyant Cruises plans to issue preferred stock with a $110 par value and a 6 percent dividend. Even…

A: Computation:

Q: Brown's Founders has preferred stock outstanding which pays a dividend of $5 at the end of each…

A: Given: Dividend per share = $5 Price of preferred share = $60

Q: At the present time, Bogdan Enterprises does not have any preferred stock outstanding but is looking…

A: Cost of preferred stock = Annual dividend / Share price Annual dividend = $15 Share price = $142.73…

Q: Bob's Stuff, Inc has preferred stock with a stated dividend of $2.04, which currently trading at…

A: Calculation of cost of preferred stock: Answer: Cost of preferred stock is 7.45%

Q: Bosio Inc.'s perpetual preferred stock sells for $71.65 per share, and it pays an $6.03 annual…

A: Given information: Price of preferred stock is $71.65 Annual dividend is $6.03

Q: Colorado Public Power has preferred stock outstanding that pays an annual dividend of $6.50. If…

A: given annual dividend = $6.50 required return = 5.75%

Q: Duggins Veterinary Supplies can issue perpetual preferred stock at a priceof $50 a share with an…

A: Current Market Price = $50 Annual Dividend = $4.5 Cost of Preferred Stock is the rate (Interest…

Q: Everest Inc's preferred stock pays a dividend of $1.10 per quarter, and it sells the preferred stock…

A: Calculate the dividend rate as follows: dividend rate = Dividend / Share price dividend rate =…

Q: Bedeker, Inc., has an issue of preferred stock outstanding that pays a $5.75 dividend every year in…

A: Preferred stocks have the characteristics of both bonds and equity. They get regular dividends like…

Q: Everest Inc's preferred stock pays a dividend of $1.40 per quarter, and it sells the preferred stock…

A: SOLUTION : GIVEN, Everest incs preferred stock price = $27.15 per share Dividend per quarter = $1.40…

Q: Everest Inc's preferred stock pays a dividend of $1.70 per quarter, and it sells the preferred stock…

A: Calculate the effective annual rate of the preferred stock as follows: Effective annual rate =…

Q: A company's preferred stock pays an annual dividend of 7 euros per share. When issued, the shares…

A: Here, Annual Dividend of Preferred Share is 7 euros Par Value of Preferred Share is 100 euros…

Q: The Ola Nacho Company has common shares of stock. If this year's dividend is $3.00 and the dividend…

Q: Brown's Founders & Co. has preferred stock outstanding which pays a dividend of $5 at the end of…

A: The current price of a preference share is the discounted value of all the dividends a preference…

Q: Stout Inc.'s perpetual preferred stock sells for $65.00 per share, and it pays an $8.50 annual…

A: Calculation of cost of preferred stock: Answer: Cost of preferred stock is 13.62%, option (b)

Q: Apollo has $5,000,000 outstanding of 8 percent preferred stock; the company has a 40 percent tax…

A: Preferred Stock - Preferred Stock are the stocks issued to the preference shareholders of the…

Q: Fantana Company’s preferred stock currently sells for $100.00 per share, and it pays an $6.00 annual…

A: Cost of capital can be defined as the total expense incurred by the company in accumulation of fund…

Q: Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $4 and are…

A: The cost of preference share is the cost of raising capital from the source of finance, it is the…

Q: The preferred stock of Rock Bottom Floors pays a fixed dividend of $7.50 annually. Each share of…

A: Dividend =7.5 market prices =58.5

Q: Mayo Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual…

A: A stock that entitles the holder to a fixed dividend that takes precedence over ordinary share…

Q: Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $4.70 dividend every…

A: Preferred Shareholders are entitled to a predetermined dividend rate. Although there is no legal…

Q: At the present time, Ferro Enterprises does not have any preferred stock outstanding but is looking…

Q: Barton Industries can issue perpetual preferred stock at a price of $52 per share. The stock would…

A: Given information: The stock price is $52. The constant annual dividend is $3.80. The formula to…

Q: A company has a preferred stock that can be sold for $15 per share. The preferred stock pays an…

A: Cost of preferred stock can be calculated by using this formula Cost of preferred stock…

Q: The preferred stock of Hose Ltd., pays an annual dividend of Shs.6.50 a share and sells for shs.48 a…

A: Annual Dividend= Shs.6.50 Current share Price= Shs.48 Cost of the preferred stock=?

Q: At the present time, Tamin Enterprises does not have any preferred stock outstanding but is looking…

A: Preference stock is a type of security bearing a fixed rate of dividend. A company may or may not…

Q: Tando Airlines has preferred stock outstanding that has a par value equal to $100. Preferred…

A: Cost of preferred stock as follows: Cost of preferred stock = Dividend / Current price Cost of…

Q: Perpetual preferred stock from Franklin Inc. sells for $97.50 per share, and it pays an $8.50 annual…

A: Given data; Price per share = $ 97.50 dividend= $8.50 Flotation cost = 4%

Q: bosio inc perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual…

A: Given: Current price of stock = $97.50 Annual dividend = $8.50 Flotation cost = 4%

Q: Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of…

A: Price of the preferred stock = Annual dividend / Required return

Q: A company’s perpetual preferred stock currently sells for $87.94 per share, and it pays a $7.24…

A: The cost of preferred stock is calculated as ratio of annual preferred dividend and the current…

Q: XYZ company has preferred stock that has an annual dividend of $5. If the current market price of a…

A: The cost of preference share is calculated as dividend divided by market price of preferred stock.

Question

The Ola Nacho Company has preferred shareholders who earn an annual $2.50 dividend that has never changed. If the market premium is .15, what is the fair value of the preferred stock?

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Mayo Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. What is the company's cost of preferred stock for use in calculating the WACC? The question does not have a flotation cost. How would I solve the problem with this information?
Crane Luxury Liners has preferred shares outstanding that pay an annual dividend equal to $30 per year. If the current price of Crane preferred shares is $176.47, what is the after-tax cost of preferred stock for Crane? - After tax cost of preferred stock?
Whitewall Tire Co. just paid an annual dividend of $1.60 on its common shares. If Whitewall is expected to increase its annual dividend by 2% per year into the foreseeable future and the current price of whitewall's common shares is $11.66, what is the cost of common stock for vwhitwall?
Bob's Stuff, Inc has preferred stock with a stated dividend of $2.04, which currently trading at $27.40 per share, and Bob believes that the company can issue additional shares at that price net. What is Bob's cost of preferred stock?
A company’s preferred stock currently sells for $95.47 per share and it pays a $4.00 annual dividend. what is the cost of the preferred stock?
Everest Inc's preferred stock pays a dividend of $1.10 per quarter, and it sells the preferred stock $28.65 per share. What is its effective annual (not nominal) rate of dividend for investors?
Fantana Company’s preferred stock currently sells for $100.00 per share, and it pays an $6.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 6.00% of the issue price. The company's tax rate is 32%. What is Fantana Company's cost of preferred stock? 6.72% 6.53% 6.88% 7.12% 6.38%
ABC Inc.’s perpetual preferred stock sells for $56 per share, and it pays an $9 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of $4 per share. What is the company’s cost of preferred stock for use in calculating the WACC?