Question

13 с 4 Using the required rate of return calculated In question 1. If a share of this common stock has just pald a dividend of $2.40, with no expected dividend growth, value this stock. $40.00 $35.00 $30.00 d $25.00 $20.00 5 Preferred stock (best answer) a. comes with voting rights bis effectively valued as a perpetuity c holders are paid only after common stockholders d holders are paid before debt holders 14

Question 1 alredy posted . thank you

Answer 1

answer 1 (a)

cost of debt = borrowed rate ( 1 - tax rate)

= 6.35(1-0.33)

=6.35(0.67)

cost of debt after tax  =4.25%

answer 13

value of share = dividend paid(cost of capital - growth rate)

= 2.4 / (4.25%-0)

= 2.4/4.25%

price per share =$56.47

answer 14 b) perferred stock is effectively valued at perpetuity because In most cases the preferred stock is perpetual in nature, hence the price of a share of preferred stock equals the periodic dividend divided by the required rate of return.

Also not preferred stock but equity shares comes with voting rights

perfered shareholders are paid first than equity shareholders because pereferred stock is treated as liability of the company

bondholders are paid first then preferred shareholders because bonds are treated as debt and has liability towards company whreas preferred stock has some characterstics of equity therefore paid after paying bondholders