Final answer:
To determine the value of a share of Max Pax $7.55 cumulative preferred stock to an investor who requires a 7.85% rate of return, calculate the present value of all the dividend payments and divide by the number of shares.
Step-by-step explanation:
To determine the value of a share of Max Pax $7.55 cumulative preferred stock to an investor who requires a 7.85% rate of return, we can use the present value (PV) calculation. PV is the value today of a future cash flow discounted at a specified rate of return. In this case, the future cash flow is the dividend payments from the preferred stock, and the specified rate of return is 7.85%.
First, calculate the present value of all the dividend payments using the formula: PV = D / (1 + r)^n, where D is the dividend payment, r is the required rate of return, and n is the number of periods.
Next, sum up all the present values of the dividend payments to get the total present value of the preferred stock. Finally, divide the total present value by the number of shares to find the value of a single share.
The correct answer is b. $78.85