Question

1.What is the value of a share of preferred stock that promises to pay a quarterly dividend of $1.87, indefinitely, if you have a required rate of return of 13.78%? (Round answer to 2 decimal places. Do not round intermediate calculations).

2.

Magnetic Corporation just experienced a technological breakthrough in one of its primary divisions and expects dividends to grow at a rate of 13.0% for the next two years. After two years, dividends are expected to grow at a constant rate of 4.0%. Magnetic’s required rate of return is 9.9% and their upcoming dividend is expected to be $3.38. What is the value of Magnetic Corporation’s common stock? (Round answer to 2 decimal places. Do not round intermediate calculations).

3.

Hughes Co. is growing quickly. Dividends are expected to grow at a 26.7 % rate for the next three years, with the growth rate falling off to a constant 4.3 % thereafter.

If the required return is 12.1 % and the company just paid a $2.82 dividend, what is the current share price? (Round answer to 2 decimal places. Do not round intermediate calculations).

Answer 1

1.

Quarterly dividend = $1.87

Rate of return = 13.78%

Annual dividend = Quarterly dividend * 4

= $1.87 * 4

= $7.48

Value of preferred share = Annual dividend / rate of return

= $7.48 / 13.78%

= $54.28

Value of preferred stock = $54.28

Note: As per HomeworkLib guidelines, only first question can be answered. Post the rest of the questions separately.