Question
Because of declining world-wide sales of its number one confection, the petit ourson, Bearsbum Confection announced today that it is suspending dividend payments on its
Because of declining world-wide sales of its number one confection, the petit ourson, Bearsbum Confection announced today that it is suspending dividend payments on its preferred shares. The shares have a 5.7% annual dividend, have a par value of $107 and are cumulative. The next dividend would have been paid tomorrow (if it were not suspended). Analysts expect Bearsbum's profits to rebound strongly in the next year and half due to the introduction of a new line of sour gummy bear paws. As a result, analysts expect that Bearsbum will resume dividends of $6.10 in two years time. What is the fair price for the shares today if investors require a return of 7.2%?
A.
$53.79
B.
$134.48
C.
$89.65
D.
$125.51
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