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# Issue preferred stock at what price; NPV & IRR of projects

Mark Walker Inc plans to issue preferred stock with a perpetual annual dividend of \$2 per share and a par value of \$25. If the required return on this stock is currently 8%, what should be the stock's market value?

a. \$22.00

b. \$23.00

c. \$24.00

d. \$25.00

e. \$26.00

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A firm with a cost of capital of 13 percent is evaluating three capital projects. The internal rates of return are as follows:

Project Internal Rate of Return
1 12%
2 15
3 14

The firm should __________.

a- accept Project 2 and reject Projects 1 and 3
b- accept Projects 2 and 3 and reject Project 1
c- accept Project 1 and reject Projects 2 and 3
d- accept Project 3 and reject Projects 1 and 2

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A firm is evaluating an investment proposal which has an initial investment of \$5,000 and cash flows presently valued at \$4,000. The net present value of the investment is __________.

A) -\$1,000
B) \$0
C) \$1,000
D) \$1.25

#### Solution Preview

1. The preferred stock is perpetuity and the price is calculated as Annual Dividend/Required return. The annual dividend is \$2 and the required return is 8%
Market value of stock = 2/8% = ...

#### Solution Summary

The solution explains some multiple choice questions relating to capital budgeting

\$2.19