Question

Villalpando Winery wants to raise ​$20 million from the sale of preferred stock. If the winery wants to sell one million shares of preferred​ stock, what annual dividend will it have to promise if investors demand a return of a. 12​%? b. 15​%? c. 8​%? d. 7​%? e. 6​%? f. 3​%? a. What annual dividend will it have to promise if investors demand a return of 12​%?

Answer 1

$2.4/share

Explanation:

In order to calculate annual dividend we have to find the price per share first

Price per share = Total Capital raised/Number of shares

Price per share = $20,000,000/1,000,000

Price per share = $20

The annual dividend can be calculated by the following formula

Formula: Expected Return = Annual dividend/ price per share

NOTE: To find Annual dividend we need to adjust the formula accordingly

Annual dividend = Expected Return x Price per share

If Expected return is 12%

Annual dividend = 12% x $20 = $2.4/share

If Expected return is 15%

Annual dividend = 15% x $20 = $3/share

If Expected return is 8%

Annual dividend = 8% x $20 = 1.6/share

If Expected return is 7%

Annual dividend = 7% x $20 = $1.4/share

If Expected return is 6%

Annual dividend = 6% x $20 = $1.2/share

If Expected return is 3%

Annual dividend = 3% x $20 = $0.6/share