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### Chap 8 - Problem Set

Course: MGT 3040, Fall 2009
School: Laurentian
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Word Count: 404

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Common Valuing &amp; Preferred Stock Chapter Eight Problem Set Common &amp; Preferred Stock 1. Company ZZZ has issued a preferred share with a face value of \$25.00 with a dividend of 5%. If investors require a 6% return to hold ZZZ preferred stock, what price would the stock trade at in the market? (\$20.83) 2. Company XXX has also issued preferred shares, but they have a face value of \$50 and a dividend...

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Common Valuing & Preferred Stock Chapter Eight Problem Set Common & Preferred Stock 1. Company ZZZ has issued a preferred share with a face value of \$25.00 with a dividend of 5%. If investors require a 6% return to hold ZZZ preferred stock, what price would the stock trade at in the market? (\$20.83) 2. Company XXX has also issued preferred shares, but they have a face value of \$50 and a dividend of \$2.50. If investors require a yield of 7% to hold XXX preferreds, what price will they trade at in the market? (35.71) 3. You own 100 preferred shares of SouthernAir Inc. The shares are trading in the market at \$40 and they pay a dividend of \$2 every year. What yield are you earning on your SouthernAir shares? (5%) 4. Country Crock Inc. just issued common shares at \$25 per share. They are expected to pay a dividend of \$1.00 at the end of the year and then grow at 6% per year thereafter. If investors require a return of 10% to hold Country Crock stock, how much would you pay for a share? (\$25) Problem Set Common & Preferred Stock 1. Western Linens paid a dividend of \$1.25 per common share yesterday. The dividend is expected to grow at 4% per year. Investors require a return of 12% hold to the stock. How much should a share of common stock cost in the market? (\$16.25) 2. EasyJet Corp is a fast growing commuter jet firm. It is expected to pay a dividend of \$1.00 tomorrow. The dividend is expected to grow at 30% for two years, then at 15% for two years and then 5% thereafter. If investors require a 10% return to hold EasyJet stock, how much should a share cost today? (\$37.62) 3. Globaltech Financial has also been growing quickly but it has elected to plow all earnings back into future growth. It is not expected to pay a dividend for five years. It is then expected to pay a dividend of \$1.00 per share at time period 6, which will then grow at 4% per year thereafter. Investors require a return of 1...

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