Question
In: Finance
Sata Limited just issued some 12% preferred stock each having a par value of $ 1,000....
Sata Limited just issued some 12% preferred stock each having a par value of $ 1,000. The stock does not have any maturity and hence it will provide annual dividends for an infinite amount of time in the future. If the investors require an 8 percent return on the company's preferred stock, what should be the current price of the company's preferred stock?
Solutions
Expert Solution
Calculation of Current price of the company's preferred stock
Given:
Par Value Of Preferred Stock = $ 1000
Rate Of Dividend = R = 12%
Also, The Preferred Stock Does not have maturity , therefore it is ir-redeemable Preferred Stock.
So,
This can be solved using Geometric Progression (GP) Equation,
Hence, from the above equation,
solving the above equation,
Therefore,
[**Derivation through GP equation is given for understanding purpose only, This Formulae for finding P0 can be used directly in case of irredeemable Preferred stock]
[Where,
P0 = current price of the company's preferred stock
Kp = Investor's required rate of return = 8%
D = Annual Dividend amount = Par Value x R% = $ 1,000 x 12 % = $ 120]
P0 = $ 1,500
Therefore current price of the company's preferred stock = $ 1,500
jeff jeffy answered 1 year agoRelated Solutions
On June 1, Summit Corporation issued 1,000 shares of $100 par value preferred stock at par...
On June 1, Summit Corporation issued 1,000
shares of $100 par value preferred stock at par value. On June 10,
the corporation issued 3,000 shares of $10 par value common stock
for $18 per share. On June 15, Summit issued 15,000 shares of
common stock in exchange for land with a fair market value of
$60,000 and a building with a fair market value of $180,000.
Prepare journal entries for the above
transactions.
Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of...
Kenny Enterprises has just issued a bond with a par value of
$1,000, a maturity of twenty years, and a coupon rate of 12.3% with
semiannual payments. What is the cost of debt for Kenny Enterprises
if the bond sells at the following prices? What do you notice about
the price and the cost of debt?
a.$951.17
b.$1000.00
c.$1067.87
d.$1156.76
Effect of Subsidiary Preferred Stock Snow Corporation issued common stock with a par value of $100,000...
Effect of Subsidiary Preferred Stock
Snow Corporation issued common stock with a par value of
$100,000 and preferred stock with a par value of $80,000 on January
1, 20X5, when the company was created. Klammer Corporation acquired
a controlling interest in Snow on January 1, 20X6.
Required:
What does Klammer's controller need to know about the preferred
stock to determine the proper allocation of consolidated net income
to the controlling and noncontrolling interests? What ethical
factors should be considered, if...
Effect of Subsidiary Preferred Stock Snow Corporation issued common stock with a par value of $100,000...
Effect of Subsidiary Preferred Stock
Snow Corporation issued common stock with a par value of
$100,000 and preferred stock with a par value of $80,000 on January
1, 20X5, when the company was created. Klammer Corporation acquired
a controlling interest in Snow on January 1, 20X6.
Required:
What does Klammer's controller need to know about the preferred
stock to determine the proper allocation of consolidated net income
to the controlling and noncontrolling interests? What ethical
factors should be considered, if...
Having the following data:- A $100.0 par value preferred stock with 10.0% dividend & a 15.0%...
Having the following data:-
A $100.0 par value preferred stock with 10.0% dividend & a
15.0% required return.
A $1.0 par value common stock with $3.0 EPS; a 5.0% risk-free
rate; a 6.0% Market Risk-Premium; a 40.0% pay-out ratio; a 5.0%
constant growth in EPS & dividend per share (g); Beta is
1.40.
A 20 years 6.0% coupon debenture (Non-guaranteed corporate bond)
with a Yield-to-maturity (YTM) of 5.0%.
Answer the following questions:-
1 - The preferred stock's price is ???...
Stockholders' Equity Paid-In Capital: Preferred Stock—4%, $12 Par Value; 150,000 shares authorized, 30,000 shares issued and...
Stockholders' Equity
Paid-In Capital:
Preferred Stock—4%, $12 Par Value; 150,000
shares
authorized, 30,000 shares issued and outstanding
$360,000
Common
Stock—$3 Par Value; 575,000 shares
authorized, 330,000 shares issued and
outstanding
990,000
Paid-In
Capital in Excess of Par—Common
990,000
Total
Paid-In Capital
2,340,000
Retained Earnings
140,000
Total Stockholders'
Equity
$2,480,000
Requirement 1. Assuming the preferred stock is
cumulative, compute the amount of dividends to preferred
stockholders and to common stockholders for
2018
and
2019
if total dividends are
$13,400
in
2018...
Cost of debt. Kenny Enterprises has just issued a bond with a par value of $1,000,...
Cost of debt. Kenny Enterprises has just issued a bond with a
par value of $1,000, a maturity of twenty years, and a coupon
rate of 8.9% with semiannual payments. What is the cost of debt
for Kenny Enterprises if the bond sells at the following prices?
What do you notice about the price and the cost of debt?
a. $956.14
b. $1,000.00
c. $1,035.22
d. $1,137.07
Sheridan Energy Company has issued perpetual preferred stock with a stated (par) value of $100 and...
Sheridan Energy Company has issued perpetual preferred stock
with a stated (par) value of $100 and a dividend of 7.0 percent. If
the required rate of return is 10.00 percent, what is the stock's
current market price? (Round answer to 2 decimal places, e.g.
15.25.)
Current market price
A corporation issued 20,000 shares of $5 par value 6% preferred stock, and 10,000 shares of...
A corporation issued 20,000 shares of $5 par value 6%
preferred stock, and 10,000 shares of $10 par value common stock,
when the corporation was formed two years ago. No dividend was
declared or paid last year. This year the corporation has $50,000
available for dividends. How much should each share of common stock
receive?
$3.80
$2.80
$4.40
zero
The statement of cash flows helps address questions such
as
How is the increase in investments
financed?
How much cash is...
Refer to the following transactions: 1. Issued 540 shares of $80 par value preferred stock at...
Refer to the following transactions:
1. Issued 540 shares of $80 par value preferred stock at
par.
2. Issued 640 shares of $80 par value preferred stock in
exchange for land that had an appraised value of $81,600.
3. Issued 19,000 shares of $4 par value common stock for $10 per
share.
4. Purchased 4,750 shares of common stock for the treasury at
$10 per share.
5. Sold 1,900 shares of the treasury stock purchased in
transaction d for $12...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The following information is available for Robstown Corporation for 20Y8: Inventories January 1 December 31 Materials...
- /* Complete the TO DO comments below */ window.onload = function() { /* TODO add a...
- Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $4,532.35. The bonds...
- How do you represent 5.1 (5 + 1/10) in binary? I know that it is 0101....
- More and more adults are considering commuting to work by bicycle rather than car, but few...
- Please answer these questions Data Processing and Analysis using python. Thank you In statistics, an outlier...
- Write a function file that accepts each of the four vectors as inputs. The function file...
ADVERTISEMENT