Question

Edinburgh Exports pays an annual dividend rate of 8.00% on its preferred stock that currently returns 10.72% and has a par value of $100.00 per share. What is the value of Edinburgh’s preferred stock?

Answer 1

Answer:

The value of Edinburgh’s preferred stock is $74.63

Explanation:

Preferred dividend are the fix amount payment which represents the perpetuity, the company can repurchase the preferred share as it is callable.

Dividend = $100 x 8% = $8

Price of Preferred Share = Dividend / Rate of return

Price of Preferred Share = $8 / 10.72%

Price of Preferred Share = $8 / 0.1072

Price of Preferred Share = $74.63