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Rob wants to start his own restaurant company. He wants to finance the company using debt, preferred stocks, and common stocks. He has decided to
Rob wants to start his own restaurant company. He wants to finance the company using debt, preferred stocks, and common stocks. He has decided to set up his capital structure with 40% debt, 5% preferred stocks, and 55% common stocks. Market statistics: the risk-free rate is 2% and the market rate is 8%.
- Rob wants to sell preferred stocks on the NYSE. His expected dividend is $50, and the required rate of return on the stock is 8%. At what price should Rob sell his preferred stock?
Preferred stock price =
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