What is the required rate of return on a preferred stock

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Reference no: EM133270192

Question - Y Imports has agreed to purchase 11,000 bags for 500,000 British pounds at today's spot rate. The current and forward spot rates are as follows:

	US dollar/British pound	British pound to US dollar
Spot	1.5110	0.5128
30-day forward	1.5540	0.5056
90-day forward	1.5460	0.5075
180-day forward	1.5400	0.5088

On the same day, Y agrees to purchase 11,500 more bags in 3 months at the same price of 500,000 British pounds.

1. What is the cost of the bags in US dollars, if purchased at today's spot rate?

2. What is the cost in dollars of the second 11,500 order if payment is made in 90 days and the spot rate at the time equals today's 90-day forward rate?

3. If the exchange rate is 0.55 British pounds per dollar in 90 days, how much will Y have to pay (in dollars) for the bags?

4. MM will issue common stock to the public for $ 28. The expected dividend and the growth on dividends are $ 2.50 per share and 5% respectively. If the flotation cost is 9% of the issue's gross proceeds, what is the cost of external equity?

5. What is the required rate of return on a preferred stock with a $49 par value, an annual dividend of 7% of par, and a current market price of 1) $30, 2) $45, 3) $55 and 4) $75?

6. A Co. is expected to pay a $ 1.25 per share dividend at the end of this year. The dividend is expected to grow at a constant rate of 7% per year. The required rate of return on the stock is 11.5%. What is the estimated value per share of the stock?

Reference no: EM133270192

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