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Oliga [24]
3 years ago
15

The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial ma

nager 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?
Business
1 answer:
vova2212 [387]3 years ago
4 0

Answer: $25

Explanation: Dividends are the returns the shareholders of the company get for investing the the company and bearing the risk and it is calculated as follows :-

Dividend = (value of share) * (rate of return)

Here we have,

Dividend = $5

rate of return = 20%

Therefore,

value\:of\:share\:=\:\frac{dividend}{rate\:of\:return}

value\:of\:share\:=\:\frac{\$5}{20\%}

                                = $25

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, suppose the book value of the debt issue is $70 million. In addition, the company has a second debt issue on the market, a zer
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