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13 November, 13:00

Villalpando Winery wants to raise $35 million from the sale of preferred stock. If the winery wants to sell one million shares of preferred stock, what annual dividend will it have to promise if investors demand a return of a. 12 %? b. 16 %? c. 8 %? d. 7 %? e. 6 %? f. 3 %? a. What annual dividend will it have to promise if investors demand a return of 12 %?

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  1. 13 November, 14:08
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    (a) $4.2

    (b) $5.6

    (c) $2.8

    (d) $2.45

    (e) $2.1

    (f) $1.05

    Explanation:

    Given that,

    Total amount of capital raised from the sale of preferred stock = $35 million

    Number of shares = 1 million

    Price per share = Total capital raised : Number of shares

    = $35 million : 1 million

    = $35 per share

    (a) If a Expected rate of return = 12 percent

    Annual dividend = Price per share * Expected Rate of return

    = $35 per share * 0.12

    = $4.2

    (b) If a Expected rate of return = 16 percent

    Annual dividend = Price per share * Expected Rate of return

    = $35 per share * 0.16

    = $5.6

    (c) If a Expected rate of return = 8 percent

    Annual dividend = Price per share * Expected Rate of return

    = $35 per share * 0.08

    = $2.8

    (d) If a Expected rate of return = 7 percent

    Annual dividend = Price per share * Expected Rate of return

    = $35 per share * 0.07

    = $2.45

    (e) If a Expected rate of return = 6 percent

    Annual dividend = Price per share * Expected Rate of return

    = $35 per share * 0.06

    = $2.1

    (f) If a Expected rate of return = 3 percent

    Annual dividend = Price per share * Expected Rate of return

    = $35 per share * 0.03

    = $1.05
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