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Sagot :
The required rate of return on its preferred stock is found by using PW = D/R.
Given Information
Dividend per year = $2
Stock price = $20
Tax rate = 21%
Required rate of return (R) = ?
- The formula for use to derive the Required rate of return includes PV = D/R, where PW means Present worth, D = Dividend per year and R means Required rate of return.
PV = D/R
$20 = $2 / R
$20 * R = $2
R = $2 / $20
R = 0.1
R = 10%
Therefore,, the required rate of return on the preferred stock is 10%.
In conclusion, the required rate of return on its preferred stock is found by using PW = D/R.
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