Learning Materials
Features
Discover
Chapter 4: Q26BP (page 325)
Question:Analogue Technology has preferred stock outstanding that pays a \(9 annual dividend. It has a price of \)76. What is the required rate of return (yield) on the preferred stock?
Answer
The required rate of return is 11.84%
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Question: Sherwin Williams will receive \(18,500 a year for the next 25 years as a result of a picture he has painted. If a discount rate of 12 percent is applied, should he be willing to sell out his future rights now for \)165,000?
You are going to receive $205,000 in 18 years. What is the difference in present value between using a discount rate of 12 percent versus 9 percent?
Question:Surgical Supplies Corporation paid a dividend of $1.12 per share over the last 12 months. The dividend is expected to grow at a rate of 2.5 percent over the next three years (supernormal growth). It will then grow at a normal, constant rate of 7 percent for the foreseeable future. The required rate of return is 12 percent (this will also serve as the discount rate).
a. Compute the anticipated value of the dividends for the next three years (D1, D2, and D3).
b. Discount each of these dividends back to the present at a discount rate of 12 percent and then sum them.
c. Compute the price of the stock at the end of the third year (P3).
P3 = D4/ (Ke - g)
d. After you have computed P3, discount it back to the present at a discount rate of 12 percent for three years.
e. Add together the answers in part b and part d to get the current value of the stock. (This answer represents the present value of the first three periods of dividends plus the present value of the price of the stock after three periods.)
Explain the relationship between inventory turnover and purchasing needs.
What two components make up the required rate of return on common stock?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App