Sydney Pickle Company preference shares pays a perpetual annual dividend of 2 1/2% of its par value.Par value of TSP preference shares is $100 per share.If investors' required rate of return on these shares is 15%, what is the value of per share?

Question

Quizplus · Accepted Answer

The value of a perpetual dividend-paying stock can be calculated using the formula: Value = Dividend / Required Rate of Return. Here, the annual dividend is 2.5% of $100, which is $2.50. Using the required rate of return of 15%, the value per share is $2.50 / 0.15 = $16.67.

Sydney Pickle Company Preference Shares Pays a Perpetual Annual Dividend