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?
A) $150
B) $100
C) $ 50
D) $ 25
E) $ 10

Question

Quizplus · Accepted Answer

The market value of the preferred stock can be calculated using the formula: Market Value = Dividend / Required Return. Here, it is $5 / 0.20 = $25.

The Jones Company Has Decided to Undertake a Large Project