A preferred share of Coquihalla Corporation will pay a dividend of $8.00 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 7% on this stock.Using the constant growth DDM to calculate the intrinsic value,a preferred share of Coquihalla Corporation is worth _________.

Question

Quizplus · Accepted Answer

According to the constant growth DDM formula, the intrinsic value of a stock is equal to the expected dividend divided by the difference between the required return and the expected dividend growth rate. In this case, the expected dividend is $8.00, the required return is 7%, and the expected dividend growth rate is 0% since dividends are not expected to grow. 
Therefore, the intrinsic value of the preferred share can be calculated as:

Intrinsic value = $8.00 / (0.07 - 0%) = $114.29

Hence, the correct choice is D) $114.29.

A Preferred Share of Coquihalla Corporation Will Pay a Dividend