Wells Engineering issued Preferred Stock about two years ago. The pres

QUESTION

Wells Engineering issued Preferred Stock about two years ago. The present annual dividend is $2.70 and the required return is 9.15%. What is the price of a share of Wells Preferred Stock?
Preferred shares are ones where the dividend payment does not grow. This is different from the common stock dividend payment, where it can grow (and even shrink sometimes). if we know from our Gordon Growth model for dividends: V = (D*(1 g))/(r-g) where: V= value of the stock D = dividend g = growth rate r = required rate of return suppose g =

0 (rule under preferred shares.) that means our equation just simplifies to: V = D*(1 0)/(r-0) which is V = D/r so for this question our dividend is 2.70 and r = 9.15% V = 2.70/0.0915 = $29.51 <-- value of our preferred shares.   ANSWER: CLICK REQUEST FOR  AN EXPERT SOLUTION