Calculation Of Prefered Shares

[runn0010]

Heres another one that got me stumped

1. SAA’s key rival, Andrew Airlines has a 7 percent preferred stock outstanding that is currently selling for $48 a share. The preferred stock has a $100 par value. The market rate of return is 10 percent and the firm's tax rate is 34 percent. GST is 13%. What is the Andrew’s cost of preferred stock? (3 marks)

I know to take the price per share and divide it by the annual dividend but how the heck do I get the annual dividend.

 

[Deleted member 4993]

Heres another one that got me stumped

1. SAA’s key rival, Andrew Airlines has a 7 percent preferred stock outstanding that is currently selling for $48 a share. The preferred stock has a $100 par value. The market rate of return is 10 percent and the firm's tax rate is 34 percent. GST is 13%. What is the Andrew’s cost of preferred stock? (3 marks)

I know to take the price per share and divide it by the annual dividend but how the heck do I get the annual dividend.

Why are you trying to calculate dividend? Which calculation will require "dividend"?

 

[runn0010]

Why are you trying to calculate dividend? Which calculation will require "dividend"?

Cost of preferred shares
Need annual dividend/share price= cost of preferred stock

 

[JeffM]

The dividend is 7 dollars per share: 7% of the par value.

Another badly worded question. What does your book mean by GST? A 10% market return on what?

 

[runn0010]

I have noI idea my teachers online all the questions are worded terribly. None of the examples in the text are the same. I’m finishing up my business degree. I did half in school and now I’m finishing online the teachers are terrible.

 

[runn0010]

He probably just through gst in to throw us off

 

[Deleted member 4993]

GST = Gross Sales Tax (?) - a guess!

 

[runn0010]

GST = Gross Sales Tax (?) - a guess!

yeah well I figured it was sales tax but a lot of the stuff is misleading

 

[runn0010]

The dividend is 7 dollars per share: 7% of the par value. Another badly worded question. What does your book mean by GST? A 10% market return on what?

Wrong answer it was 14.58% I just got my assignment back Still trying to figure out calculation...

 

[JeffM]

Wrong answer it was 14.58% I just got my assignment back Still trying to figure out calculation...

You asked what was the dividend. I correctly told you that it was 7 dollars per share. You asked, "how the heck do I get the annual dividend." So I answered the question you asked

The 14.58% is the yield and equals [MATH]7 \div 48[/MATH],

which is the ratio between the dividend and the price.

 

[runn0010]

It’s worded terrible maybe I’ll msg my prof and ask.