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Cost of Preferred Stock XYZ Company plans to go for a Preferred Stock issue that pays...

Cost of Preferred Stock

XYZ Company plans to go for a Preferred Stock issue that pays $5 dividend; further, the stock can be sold for $60 per share. If the floatation cost is $4 per share, please calculate the cost of the preferred stock.

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Answer #1

Cost of preferred stock=Annual dividend/(Current value-Flotation cost)

=5/(60-4)

=5/56

=8.93%(Approx).

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