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Determining Value of Preferred and common stock

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A firm has an expected dividend next year of $1.20 per share, a zero growth rate of dividends, and a required return of 10 percent. The value of a share of the firm's common stock is ______.
$120
$10
$12
$100

A firm has an issue of preferred stock outstanding that has a stated annual dividend of $4. The required return on the preferred stock has been estimated to be 16 percent. The value of the preferred stock is _____.
$64
$16
$25
$50

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Solution Summary

The solution explains the formula for determining value of common (with zero growth of dividend) and preferred stock.

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A firm has an expected dividend next year of $1.20 per share, a zero growth rate of dividends, and a required return of 10 percent. The value of a share of ...

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Lokesh Jain, MSc
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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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