Question

Quantitative Problem 2: Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.90 at the end of each year. If investors require an 7% return on the preferred stock, what is the price of the firm's perpetual preferred stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share

Answer 1

$27.14

Step-by-step explanation:

Calculation for the price of the firm's perpetual preferred stock

Using this formula

Price of the firm perpetual preferred stock = Annual dividend / Required return

Where,

Annual dividend =$1.90

Required return=7% or 0.07

Let plug in the formula

Price of the firm perpetual preferred stock = $1.90 / 0.07

Price of the firm perpetual preferred stock=$27.14

Therefore the Price of the firm perpetual preferred stock will be $27.14