Question

molen inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $4.00 per share. if the required return on this preferred stock is 6.5%, then at what price should the stock sell?

Answer 1

The price at which the stock should sell is $61.54.

Using this formula

Stock selling price=Preferred stock annual dividend/Preferred stock required return

Where:

Preferred stock annual dividend=$4.00 per share

Preferred stock required return=6.5% or  0.065

Let plug in the formula

Stock selling price=$4.00/0.065

Stock selling price=$61.538

Stock selling price=$61.54 (Approximately)

Inconclusion the price at which the stock should sell is $61.54.

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