Question

Five years ago, Parkdale Plaza LLC issued $40 million of preferred stock with a par value of $200.00 per share and a dividend yield of 12.00% per share per year. An investor with a required return for this preferred stock of 16.00% has just offered $140.00 per share to a person who owns 100 shares of this preferred stock. Is this the last offer the prospective buyer will make to buy this preferred stock? Yes, because the prospective buyer believes the preferred stock is worth more than $200 per share No, because the prospective buyer believes the preferred stock is worth more than $140 per share No, because the prospective buyer believes the preferred stock is worth less than $200 per share Yes, because the prospective buyer believes the preferred stock is worth $140 per share

Answer 1

Perspective buyer value of the stock=(200*12%)/16%=150 which implies profitable for the buyer buying at 140

so answer: No, because the prospective buyer believes the preferred stock is worth more than 140 per share