Villalpando Winery wants to raise $20 million from the sale of preferred stock. If the winery wants to sell one million shares of preferred stock, what annual dividend will it have to promise if investors demand a return of a. 12%? b. 15%? c. 8%? d. 7%? e. 6%? f. 3%? a. What annual dividend will it have to promise if investors demand a return of 12%?

$2.4/share

Explanation:

In order to calculate annual dividend we have to find the price per share first

Price per share = Total Capital raised/Number of shares

Price per share = $20,000,000/1,000,000

Price per share = $20

The annual dividend can be calculated by the following formula

Formula: Expected Return = Annual dividend/ price per share

NOTE: To find Annual dividend we need to adjust the formula accordingly

Annual dividend = Expected Return x Price per share

If Expected return is 12%

Annual dividend = 12% x $20 = $2.4/share

If Expected return is 15%

Annual dividend = 15% x $20 = $3/share

If Expected return is 8%

Annual dividend = 8% x $20 = 1.6/share

If Expected return is 7%

Annual dividend = 7% x $20 = $1.4/share

If Expected return is 6%

Annual dividend = 6% x $20 = $1.2/share

If Expected return is 3%

Annual dividend = 3% x $20 = $0.6/share

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rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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