14. X-Tech Company issued preferred stock many years ago. It carries a fixed dividend of $9 per share. With the passage of time, yields have changed from the original 15 percent to 18 percent (yield is the same as required rate of return).

a. What was the original issue price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Original Issue Price: ___________

b. What is the current value of this preferred stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Current Value: __________

c. If the yield on the Standard & Poors Preferred Stock Index declines, how will the price of the preferred stock be affected?

multiple choice

• The price of preferred stock will increase.

• The price of preferred stock will decrease.

20. A firm pays a $1.50 dividend at the end of year one (D₁), has a stock price of $156 (P₀), and a constant growth rate (g) of 13 percent.

a. Compute the required rate of return (K_e). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Rate of Return: _____________

Indicate whether each of the following changes will increase or decrease the required rate of return (K_e). (Each question is separate from the others. That is, assume only one variable changes at a time.) No actual numbers are necessary.

b. If the dividend payment increases:

Dividend Yield: _________

Required rate of return: ____________