Preference share valuation: The Burleigh Basin Surf Co. has issued perpetual preference shares with a $100 par value. The company pays a quarterly dividend of $2.60 on this share. What is the current price of this preference share given a required rate of return of 12.5 percent?

Question

Quizplus · Accepted Answer

The formula for valuing perpetual preference shares is:

Value of preference share = Annual dividend / Required rate of return

First, we need to calculate the annual dividend:

Dividend per quarter = $2.60
Dividend per year = $2.60 * 4 = $10.40

Now, we can use the formula to get the value of the preference share:

Value of preference share = $10.40 / 0.125 = $83.20

Therefore, the current price of the preference share is $83.20, which is option D.

Preference Share Valuation: the Burleigh Basin Surf Co