Fin221

Preferred stock of SBS Inc., pays annual dividends or $2.10. a. As a perpetuity, what is the fair price of Slow But Sure's preferred stock if the required return on this stock is 12 percent? b. How much is the next expected dividend? ______ c. For every preferred share, how many votes the shareholder has? ______ d. If the market price of this stock is $20, should you buy this stock? Explain your reason. The Rich Corporation has just invented a cheap form of energy. Investors with 16% required rate of return expect this company to grow at an acceleration rate of 45% per year for the next 3 years and then continue at a constant growth rate of 15% per year. What would investors be willing to pay for the common stock if the most recent annual dividend was $4.00 per share? A. Based on the table above, calculate what rate the bank will charge to (a) small firm and (b) large firm? __________ b. How much is the difference between the rates charged to small and large firms? c. If the small firm faces default risk premium 3.5%, would it be reasonable to have higher default risk premium for large firm? ______. Explain