You are considering the of xyz company's perpetual preferred stock, which pays a perpetual divend of $8 per. If the appropriate discount rate for this investment is 14%, what is the price of one share of this stock? Thank you.
Preferred stock differs from common stock in that preferred stock: Thank You?
Due to a technical breakthrough, the fixed costs for a firm drop by 25%. Prior to this breakthrough fixed costs were $100,000 and unit contribution margin was remains at $5.00. The new amount of break-even units will be:
75,000/5.00 = 15,000 unit sales will result in breakeven
To calculate the price of one share of the perpetual preferred stock, we need to use the formula for the present value of a perpetuity.
The formula for the present value of a perpetuity is: P = D/r
Where:
P = Price of one share of perpetual preferred stock
D = Dividend payment per period ($8 in this case)
r = Discount rate (14% in this case)
Using the given values, we can calculate the price as follows:
P = 8 / 0.14
P = $57.14
Therefore, the price of one share of this perpetual preferred stock is $57.14.