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Question 3 a) Supreme Company has an outstanding preferred issue of stock with a par value of $100 and an annual dividend of 10 percent
Question 3 a) Supreme Company has an outstanding preferred issue of stock with a par value of $100 and an annual dividend of 10 percent (of par). Similar risk preferred stocks are yielding an 11.5 percent annual rate of return. (i) What is the current value of the outstanding preferred stock? (ii) What will happen to price if the risk-free rate increases? Explain. (5 marks) b) Julie's X-Ray Company paid $2.00 per share in common stock dividends last year. The company will allow its dividend to grow at 5 percent for 4 years, and after that the rate of growth will be 3 percent forever. What is the value of the stock if the required rate of return is 8 percent? (15 marks)
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