Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.

If the required return on this preferred stock is 6.5%, at what price should the stock sell?

Question

Bennett Mcintosh

Business

28 May, 14:27

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.

If the required return on this preferred stock is 6.5%, at what price should the stock sell?

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Answers (1)

Know the Answer?

Matthew Butler · Answer 1

Preferred stock price is $115.38

Explanation:

stock price = dividend/required rate of return

dividend is $7.50

required rate of return is 6.5%

stock price = $7.50/6.5%

stock price=$7.50/0.065

stock price=$ 115.38

The most that a rational investor for the preferred stock of Molen Inc is $115.38 as that reflects the dividend earning capacity of the stock upon which investors base their pricing judgement.

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.If the required return on this preferred stock is 6.5%, at what price should the stock sell?

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.

If the required return on this preferred stock is 6.5%, at what price should the stock sell?