CFIN
5th Edition
ISBN: 9781305661639
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 7, Problem 3PROB
Summary Introduction
The
Preferred stock as the name suggest has higher preference over common stock. Preferred stockholders get annual dividends like bond holders and have higher priority. Value of the preferred stock also depends on the dividends paid and the required rate of return on the same.
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The Ape Copy Company's preferred stock pays an annual dividend equal to $16.50. If investors demand a return equal to 11 percent to purchase Ape's preferred stock, what is its market value?
Express Surgery Center's (ESC) preferred stock, which has a par value equal to $210 per share, pays an annual dividend equal to 11 percent of the par value. If investors require a 15 percent return to purchase ESC's preferred stock, what is the stock's market value? Do not round intermediate calculations. Round your answer to the nearest cent.
$
Pioneer's preferred stock is selling for
$44
in the market and pays a
$3.10
annual dividend.
a. If the market's required yield is
8
percent, what is the value of the stock for that investor?
b. Should the investor acquire the stock?
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- (Preferred stock valuation) Kendra Corporation's preferred shares are trading for $32 in the market and pay a $4.50 annual dividend. Assume that the market's required yield is 15 percent. a. What is the stock's value to you, the investor? b. Should you purchase the stock? a. The value of the stock to you, the investor, is $ per share. (Round to the nearest cent.)arrow_forward(Preferred stock valuation) Pioneer's preferred stock is selling for $23 in the market and pays a $2.70 annual dividend. a. If the market's required yield is 14 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock? a. The value of the stock for that investor is $ per share. (Round to the nearest cent.)arrow_forwardJones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $60 and pays an annual dividend of $5.60 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 7.1%. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 8.6%?arrow_forward
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- You own a perpetual preferred stock issued by Mass General Insurance Company. If the Mass General preferred pays a dividend of $1.02/year, and today’s market rate for this preferred is 4.1%/year, what is its estimated current market price? The current market price for a preferred stock = Annual dividend/Cost of the preferred stock The current market price for the preferred stock is $24.88. Question I need help with in reference to the question above: If the dividend of Mass General’s preferred stock described in Q3 is scheduled to increase 1%/year, what would its estimated current market price be?arrow_forwardMarme, Inc. has preferred stock selling for 96 percent of par that pays an 11 percent annual coupon. What would be Marme's component cost of preferred stock? (Round your answer to 2 decimal places.) Cost of preferred stock %arrow_forward(Preferred stock valuation) Pioneer's preferred stock is selling for $30 in the market and pays a $3.30 annual dividend. Chapter a. If the market's required yield is 9 percent, what is the value of the stock for that investor? b. Should the investor acquire the stock? Chapter a. The value of the stock for that investor is $ per share. (Round to the nearest cent.) b. Should the investor acquire the stock? (Select from the drop-down menus.) Chapter The investor acquire the stock because it is currently V in the market. Chapter 1 should not should I Chapter D Chapter I Chapter Сoprigl Terms of Enter your answer in the answer box. Save for Later ..pptx APRarrow_forward
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