Question

The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20 percent, what should be the stock's market value? Select one: a. $150 b. $100 c. $ 50 d. $ 25 e. $ 10

Answer 1

Answer:

stocks market value is $25

so correct option is d

Explanation:

given data

annual dividend = $5 per share

par value = $30

required return = 20%

To find out

stocks market value

solution

we consider stock market value is M

we know here annual dividend is $5 per share

so we can say

annual dividend = market value × require return  .................1

put here all these value

annual dividend = market value × require return

5 = 20% × M

M = 5 / 20%

M = 5 / 0.20

M = 25

stocks market value is $25

so correct option is d