Some of the local licensed stockbrokers offer investors the opportunity to invest in international equities. In an effort to have a diversified portfolio, you are considering investing in a few stocks...

Some of the local licensed stockbrokers offer investors the opportunity to invest in international equities. In an effort to have a diversified portfolio, you are considering investing in a few stocks that are traded in the United States. You have chosen Coca Cola, a company you are familiar with. The company has both common and preference shares.

Required:

1. Common shares: Coca Cola just paid a dividend $5.50, which will increase by 10% annually over the next three (3) years, with the growth rate falling off to a constant 5% thereafter. If your required return on these shares is 15%. How much would you be willing to pay for a share of this stock today?


2. Preference shares: The Company’s preference shares pay an annual dividend of $4.10. With preference shares being slightly less risky than common shares, your required return is 11.5%. How much would you be willing to pay for a share of this stock today?