The Heels Shoe Company's preference shares pay a perpetual annual dividend of 2 1/2% of its face value.Par value of THS preference share is $100 per share.If investors' required rate of return on this share is 15%,what is the value of per share?

Question

Quizplus · Accepted Answer

The dividend yield of the preference share is 2.5% of its face value, which is $100 per share, so the annual dividend per share is $2.50. 
The required rate of return is 15%, or 0.15 as a decimal. To value the preference share, we can use the formula:
Value = Dividend / Required rate of return
Value = $2.50 / 0.15
Value = $16.67
Therefore, the value of per share is $16.67, which is closest to option C, $16.67. The other answer choices are significantly lower than the calculated value, so they can be eliminated.

The Heels Shoe Company's Preference Shares Pay a Perpetual Annual