A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm's preferred stock is ________.

Question

Quizplus · Accepted Answer

The value of the preferred stock can be calculated using the perpetuity formula: Preferred Stock Value = Dividend / Required Return. Plugging in the given numbers, we get:
Preferred Stock Value = $1.20 / 0.10
Preferred Stock Value = $12
Therefore, the value of the firm's preferred stock is $12, which is option C.

A Firm Has to Pay a Dividend of $1