Question

In: Finance

Villalpando Winery wants to raise ​$25 million from the sale of preferred stock. If the winery...

Villalpando Winery wants to raise ​$25 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. 12%?

b. 15%?

c. 8%?

d. 7%?

e. 5%?

f. 3%?

Solutions

Expert Solution

Calculate the issue price of preferred stock as follows:

Price = Amount raised / Number of shares

= $25 million / 1 million

= $25

-------------------------------------------------------------

a.

Calculate the dividend when dividend yield 12% as follows:

Dividend = Price * Rate

= $25 * 12%

= $3

Therefore, the dividend is $3.

-----------------------------------------------------------------------------------

b.

Calculate the dividend when dividend yield 15% as follows:

Dividend = Price * Rate

= $25 * 15%

= $3.75

Therefore, the dividend is $3.75.

--------------------------------------------------------------------------------------

c.

Calculate the dividend when dividend yield 8% as follows:

Dividend = Price * Rate

= $25 * 8%

= $2

Therefore, the dividend is $2.

----------------------------------------------------------------------------------------

d.

Calculate the dividend when dividend yield 7% as follows:

Dividend = Price * Rate

= $25 * 7%

= $1.75

Therefore, the dividend is $1.75.

--------------------------------------------------------------------------------------

e.

Calculate the dividend when dividend yield 5% as follows:

Dividend = Price * Rate

= $25 * 5%

= $1.25

Therefore, the dividend is $1.25.

-----------------------------------------------------------------------------------

f.

Calculate the dividend when dividend yield 3% as follows:

Dividend = Price * Rate

= $25 * 3%

= $0.75

Therefore, the dividend is $0.75.

jeff jeffy answered 1 year ago
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