Question

Morristown Industries has an issue of preferred stock outstanding that pays a $12.60 dividend every year in perpetuity. If the required return of this issue is 15.75%, what is the price per share

Answer 1

Answer:

$80 per share.

Explanation:

Given: Dividend= $12.60

           Rate of return= 15.75%

  Now, finding the price per share.

Formula; Price per share= $\frac{Dividend}{Rate\ of\ return}$

⇒ Price per share= $\frac{12.60}{15.75\%}$

⇒ Price per share= $\frac{12.60}{0.1575}$

∴ Price per share= $80 per share.

Hence, price per share is $80 for Morristown Industries.