Stephen and Chris are also looking at issuing preferred and common stock to furt

Question

Stephen and Chris are also looking at issuing preferred and common stock to further expand TechU's businesses.   They also want to examine their existing stock value to get a picture of how much they can sell additional stock for. The last dividend CompU paid was $0.80. CompU is also looking at issuing preferred stock so Bill Jobs can retain close ownership in the company. The preferred stock has a par value of $50 and will pay a 5% dividend per year. If the required return for investors is 8%, what is the value of the preferred stock?

Explanation / Answer

Answer:

The value of a preferred stock = Dividend amount/required rate of return = ($50*5%)/0.08 = $31.25 (ans)

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