Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Textbook Question
Chapter 7, Problem 7.5P
Learning Goal 4
P7-5 Preferred stock valuation TXS Manufacturing has an outstanding preferred stock issue with a par value of $65 per share. The preferred sl1ares pay dividends annually at a rate of 10%.
- a. What is the annual dividend on TXS preferred stock?
- b. If investors require a return of 8% on this stock and the next dividend is payable 1 year from now, what is the price of TXS preferred stock?
- c. Suppose that TXS has not paid dividends on its
preferred shares in the past 2 years, but investors believe it will start paying dividends again in 1 year. What is the value of TXS preferred stock if it is cumulative and if investors require an 8%rate of return ?
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Exam Financial Markets
1. An investor expects to purchase common stocks today and sell them after three years. The
investor has estimated dividends for the next three years, D,, D, and D, and the selling price of
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of the stock today is the present value of:
a) next year's dividend, D.
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e) future expected dividends and price, D, D, D, and P,
Additional Activities
Perform what is being asked in the following:
1. What will you pay today for a stock that is expected to make a P 45.00
dividend in one year if the expected dividend rate is 5% and you require a 12%
return on your investment?
2. XYZ Company's preferred stock is selling for P 60.00 a share. If the required
return is 8%, what will the dividend be two years from now?
3. Your broker is trying to sell you a stock with a current market price of
P 2,160.00 The stock's last dividend was P 53.25, and earnings and
dividends are expected to increase at a constant growth rate of 10%. Is the
stock fairly valued if the return is 13%? Explain why or why not.
2. Preferred Stock Valuation
RSR Inc. has an outstanding preferred stock issue with a par value of $100 per share. The preferred shares pay
dividends annually at a rate of 14%.<
a. What is the annual dividend on RSR preferred stock?<
b. If investors require a return of 16% on this stock and the next dividend is payable one year from now, what is the price of RSR preferred stock?<
c. Suppose that RSR has not paid dividends on its preferred shares in the last 2 years, but investors believe that it will start paying dividends again in
one year. What is the value of RSR preferred stock if it is cumulative and if investors require a 16% rate of return?
Chapter 7 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 7.1 - What are the key differences between debt and...Ch. 7.2 - What risks do common stockholders take that other...Ch. 7.2 - Prob. 7.3RQCh. 7.2 - Explain the relationships among authorized shares,...Ch. 7.2 - Prob. 7.5RQCh. 7.2 - Prob. 7.6RQCh. 7.2 - Explain the cumulative feature of preferred stock....Ch. 7.2 - Prob. 7.8RQCh. 7.2 - Prob. 7.9RQCh. 7.2 - Prob. 7.10RQ
Ch. 7.2 - Prob. 7.11RQCh. 7.3 - Prob. 1FOECh. 7.3 - Describe the events that occur in an efficient...Ch. 7.3 - Prob. 7.13RQCh. 7.3 - Describe, compare, and contrast the following...Ch. 7.3 - Describe the free cash flow valuation model, and...Ch. 7.3 - Explain each of the three other approaches to...Ch. 7.4 - Prob. 7.17RQCh. 7.4 - Assuming that all other variables remain...Ch. 7 - Prob. 1ORCh. 7 - Prob. 7.1STPCh. 7 - Prob. 7.2STPCh. 7 - Prob. 7.1WUECh. 7 - Prob. 7.2WUECh. 7 - Prob. 7.3WUECh. 7 - Prob. 7.4WUECh. 7 - Prob. 7.5WUECh. 7 - Prob. 7.6WUECh. 7 - Authorized and available shares Aspin...Ch. 7 - Prob. 7.2PCh. 7 - Learning Goal 2 P7-3 Preferred dividends In each...Ch. 7 - Learning Goal 2 P7-4 Convertible preferred stock...Ch. 7 - Learning Goal 4 P7-5 Preferred stock valuation TXS...Ch. 7 - Prob. 7.6PCh. 7 - Preferred stock valuation Jones Design wishes to...Ch. 7 - Learning Goal 4 P7-8 Common stock value: Constant...Ch. 7 - Common stock value: Constant growth McCracken...Ch. 7 - Prob. 7.10PCh. 7 - Prob. 7.11PCh. 7 - Prob. 7.12PCh. 7 - Learning Goal 4 P7-14 Common stock value: Variable...Ch. 7 - Prob. 7.14PCh. 7 - Prob. 7.15PCh. 7 - Prob. 7.16PCh. 7 - Prob. 7.17PCh. 7 - Prob. 7.19PCh. 7 - Prob. 7.20PCh. 7 - Prob. 7.21PCh. 7 - Prob. 7.22PCh. 7 - Prob. 7.23PCh. 7 - Prob. 7.24P
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