A- 12. Valuing preferred stock Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a common stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders receive a fixed payment-their dividend--before the company's residual earnings are paid out to its common stockholders and, as with common stock, preferred stockholders can benefit from an appreciation in the value of the firm's stock securities Consider the following case of International Imports (12): International Imports (12) pays an annual dividend rate of 10.20% on its preferred stock that currently returns 13.67%) and has a par value of $100.00 per share. What is the value of 12's preferred stock? $111.92 per share $100.00 per share $74.62 per share $89.54 per share Supposes that there is high whermployment, which causes interest rates to fall, which in tur pulls the preferred stock's yield to 1.20%. The value of the preferred stock will Grade It Now Save Continue Continue wit X 09: Assignment - Stocks and Their Valuation 12. Valuing preferred stock Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetulty ir the payments last forever. Preferred stocks are considered to be a hybrid of a common stock and a band. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders receive a fixed payment-their dividend-before the company's residual earnings are paid out to its carmon stockholders and, as with common stock, preferred stockholders can benefit from an appreciation in the value of the firm's stock securities Consider the following case of International Imports (12): International Imports (12) pays an annual dividend rate of 10.20% on its preferred stock that currently returns 13.67% and has a par value of $100.00 per share. What is the value of 12's preferred stock? O $111.92 per share 0 5100.00 per share 174.62 per share $89.54 decrease Suppose that there preferred stock will increase rployment, which causes interest rates to fall, which in turn pulls the preferred stock's yield to 8.20%. The value of the Grade It Now Save & Continue Continue without sving 80 F DOO 000 f . 4 II > FS 17 NO 911 192 1 * # 3 + $ 4 % 5 & 7 6 8 8 9 0 del
