World Wide Interlink Corp.has decided to undertake a large project.Consequently,there is a need for additional funds.The financial manager plans to issue preference shares with an annual dividend of $5 per share.The share will have a par value of $30.If investors' required rate of return on this investment is currently 20%,what should the preference share's market value be?

Question

Quizplus · Accepted Answer

To calculate the market value of the preference shares, we need to use the following formula:
Market value of preference share = Annual dividend / Required rate of return
Market value of preference share = $5 / 0.20
Market value of preference share = $25
Therefore, the preference share's market value should be $25. Option D is correct.