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Stock and market values

Thompson 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

Companies A and B each reported the same earnings per share (EPS), but Company J?s stock trades at a higher price. Which of the following statements is correct?

a. Company A must have a higher P/E ratio.

b. Company A must have a higher market-to-book ratio.

c. Company A must be riskier.

d. Company A must have fewer growth opportunities.

e. Company A must pay a lower dividend

Solution Preview

Thompson 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?
Market value of stock = Perpetual Annual dividend / required rate of return
=$2/8%=$25

d. $25.00

Companies A and B each ...

Solution Summary

Stock and market values are determined.

$2.19