Question

carlysle corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.20 at the end of each year. if investors require an 6% return on the preferred stock, what is the price of the firm's perpetual preferred stock? round your answer to the nearest cent.

Answer 1

The price of the firm's perpetual preferred stock is $20.

Step-by-step explanation:

To find the price of the firm's perpetual preferred stock, we can use the formula for the present value of a perpetuity. The formula is:

Price = Dividend / Required Rate of Return

In this case, the annual dividend is $1.20 and the required rate of return is 6%. Converting the rate to a decimal, we get 0.06.

Substituting the values into the formula, we get:

Price = $1.20 / 0.06 = $20

So, the price of the firm's perpetual preferred stock is $20.