Reference no: EM132957154

Problem 1: Capri Holdings Limited has issued preferred stock ($50 par value) that pays an annual dividend of $4.20. The preferred stock matures in 8 years. At that time, holders of the stock will receive, at their option, either $50 or one share of common stock with a value up to $65. If the common stock is trading at a price above $65, the preferred stockholders will receive a fractional share of common stock worth $65. The current common stock pays a $2.5 per share dividend. This dividend is expected to grow at a 7 percent rate per year for the next 8 years. If the market requires a 15% rate of return on a stock of this risk and maturity, what is the maximum value for which the share can be expected to trade?