Millco Victoria has preferred shares outstanding and pays a semi-annual dividend of $4.50. If the next...

Millco Victoria has preferred shares outstanding and pays a semi-annual dividend of $4.50. If the next dividend is paid six months from now and the annual required return is 12%, how much would you pay today if you want to buy a preferred share from this company?

Select one:

a. $50.00

b. $25.00

c. $75.00

d. $66.25

Expert Solution

The amount payable to buy a preferred share is the present value of its perpetual annual dividends:

=Annual dividend/required return

=(4.5*2)/12%

=75

The answer is c)

jeff jeffy answered 2 years ago

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