McCool Air Conditioning Systems pays a dividend on its preferred stock every 6 months. Stock price...

McCool Air Conditioning Systems pays a dividend on its preferred stock every 6 months. Stock price today is $56.00. If the required rate of return is 8.5%, what is the semi-annual dividend paid by the company?

Expert Solution

Solution:
	Semi-annual dividend paid by the company	$2.38

Working Notes:

Notes:	Normally preferred stock valued = Annual dividend / Required rate of return
	Since, company pay semi annual dividend on preferred stock its price will equals to (Price = Semi annual dividend/(annual rate/2) ) as preferred stock are perpetual in nature .

	Price = Semi annual dividend/(annual required rate of return /2)
	Divided by 2 as semi annual dividend is paid 2 times in a year , and to get semi annual required rate of return we have to divided by 2.


	Price = Semi annual dividend/(annual required rate of return /2)
	$56 = Semi annual dividend/(8.5%/2)
	$56 = Semi annual dividend/4.25%
	Semi annual dividend = $56 x 4.25%
	Semi annual dividend = $2.38

Hence	Semi-annual dividend paid by the company	$2.38

Please feel free to ask if anything about above solution in comment section of the question.

jeff jeffy answered 2 years ago

A $66 stock pays a dividend of $1.40 every 3 months, with the first dividend coming...

A $66 stock pays a dividend of $1.40 every 3 months, with the first dividend coming 3 months from today. The continuously compounded risk-free rate is 6%. What is the price of a prepaid forward contract that expires 6 months from today, immediately after the second dividend? a. $65.19 b. $64.62 c. $63.26 d. $63.20 e. $63.37

A share of preferred stock pays a quarterly dividend of $1.00. If the price of the...

A share of preferred stock pays a quarterly dividend of $1.00. If the price of the stock is $50, what is the effective annual (not nominal) rate of return on the preferred stock?

Meteora, Inc., has an issue of preferred stock outstanding that pays a dividend of $4.35 every...

Meteora, Inc., has an issue of preferred stock outstanding that pays a dividend of $4.35 every year, in perpetuity. This issue currently sells for $95 per share. What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.60 dividend every...

Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.60 dividend every year, in perpetuity. If this issue currently sells for $80.40 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Required return %

Cardi B, Inc., has an issue of preferred stock outstanding that pays a $3.15 dividend every...

Cardi B, Inc., has an issue of preferred stock outstanding that pays a $3.15 dividend every year in perpetuity. If this issue currently sells for $72 per share, what is the required return?

Your firm's preferred stock pays a dividend of $3.30 per year. The current price of the...

Your firm's preferred stock pays a dividend of $3.30 per year. The current price of the preferred stock is $21.50. Your firm's tax rate is 35%. What is your firm's cost of preferred stock?

Big Battery Car Company issued preferred stock that pays a $6.00 dividend every year in perpetuity. They...

Big Battery Car Company issued preferred stock that pays a $6.00 dividend every year in perpetuity. They just announced sales of their new car are not meeting analyst’s expectations. The Management has decided to stop paying common stock dividends for 6 years to reinvest earnings in new features. The market rate of return is 7.0%.

Barnes Air Conditioning Inc. has two classes of preferred stock: floating rate preferred stock and straight...

Barnes Air Conditioning Inc. has two classes of preferred stock: floating rate preferred stock and straight (normal) preferred stock. Both issues have a par value of $100. The floating-rate preferred stock pays an annual dividend yield of 4 percent, and the straight preferred stock pays 5 percent. Since the issuance of the two securities, interest rates have gone up by 1.00 percent for each issue. Both securities will pay their year-end dividend today.

A firm's preferred stock pays an annual dividend of $4, and the stock sells for $72.

Q4A firm's preferred stock pays an annual dividend of $4, and the stock sells for $72. Flotation costs for new issuances of preferred stock are 7% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 39%? (Round your answer to 2 decimal places.)Q5A firm is paying an annual dividend of $5.00 for its preferred stock which is selling for $67.00. There is a selling cost of $3.00. What is the after-tax...

You are considering to purchase a preferred stock. This stock pays an annual dividend of $3.88....

You are considering to purchase a preferred stock. This stock pays an annual dividend of $3.88. How much is one share of this stock worth today if the rate of return is 9.50%?

Question