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Villalpando Winery wants to raise ​$15 million from the sale of preferred stock. If the winery...

Villalpando Winery wants to raise ​$15 million from the sale of preferred stock. If the winery wants to sell one million shares of preferred​ stock, what annual dividend will it have to promise if investors demand a return of

a.  11​%?

b.  16​%?

c.  9​%?

d.  7​%?

e.  5​%?

f.  4​%?

What annual dividend will it have to promise if investors demand a return of (A-F)

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Expert Solution

- Villalpando Winery wants to raise ​$15 million from the sale of 1 million shares of preferred stock

Price of Preferred Stock per share = $15 million/1 million shares = $15 per share

Calculating the Annual dividend it have to promise if investors demand a return of:-

a). Investor's Required return = 11%

Annual Dividend per share = Price of Preferred Stock per share*Required return

Annual Dividend per share = $15 per share*11%

Annual Dividend per share = $1.65 per share

b). Investor's Required return = 16%

Annual Dividend per share = Price of Preferred Stock per share*Required return

Annual Dividend per share = $15 per share*16%

Annual Dividend per share = $2.4 per share

c). Investor's Required return = 9%

Annual Dividend per share = Price of Preferred Stock per share*Required return

Annual Dividend per share = $15 per share*9%

Annual Dividend per share = $1.35 per share

d). Investor's Required return = 7%

Annual Dividend per share = Price of Preferred Stock per share*Required return

Annual Dividend per share = $15 per share*7%

Annual Dividend per share = $1.05 per share

e). Investor's Required return = 5%

Annual Dividend per share = Price of Preferred Stock per share*Required return

Annual Dividend per share = $15 per share*5%

Annual Dividend per share = $0.75 per share

f). Investor's Required return = 4%

Annual Dividend per share = Price of Preferred Stock per share*Required return

Annual Dividend per share = $15 per share*4%

Annual Dividend per share = $0.60 per share

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jeff jeffy answered 2 years ago
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