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20 June, 05:59

The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20 percent, what should be the stock's market value? Select one: a. $150 b. $100 c. $ 50 d. $ 25 e. $ 10

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  1. 20 June, 06:14
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    stocks market value is $25

    so correct option is d

    Explanation:

    given data

    annual dividend = $5 per share

    par value = $30

    required return = 20%

    To find out

    stocks market value

    solution

    we consider stock market value is M

    we know here annual dividend is $5 per share

    so we can say

    annual dividend = market value * require return ... 1

    put here all these value

    annual dividend = market value * require return

    5 = 20% * M

    M = 5 / 20%

    M = 5 / 0.20

    M = 25

    stocks market value is $25

    so correct option is d
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