What is the cost of preferred stock for a firm with a $50 par value, a...
What is the cost of preferred stock for a firm with a $50 par value, a 7% dividend rate, a share price of $58 and a 5% floatation cost?
Please show formula and work
Homework Answers
Cost of preferred share = Annual dividend/Current price
However, in this case, current price needs to be adjusted for floatation cost.
Current price adjusted for floatation cost = $58 * (1 - 5%) = $55.10
Annual dividend = 7% * $50 = $3.50
Cost of preferred shares = $3.50/$55.10 = 6.35%
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