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Jones Company: Stock Market Value for New Preferred Issue

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The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20 percent, what should be the stock's market value?

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This solution is comprised of a detailed explanation to answer what should be the stock's market value.

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The value of the stock should be equal to the PV of the cash flows it generates. This stock provides a perpetual ...

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