Question

McPhail Corporation $100 face value fixed-rate perpetual preferred stock pays an annual dividend of $5.75 per share. What is the value of one share of this stock to an investor who requires a rate of return of 6.25%

Answer 1

$92

Step-by-step explanation:

Value per share of preferred stock = Annual dividend / Required rate of return

Annual dividend = $5.75 per share

Required rate of return = 6.25%

Value of one share of this stock = $5.75/6.25%

Value of one share of this stock = $5.75/0.0625

Value of one share of this stock = $92