A firm has $3 million market value and it sells preferred stock with a par value...

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A firm has $3 million market value and it sells preferred stock with a par value of $100. If the coupon rate on the preferred

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Answer 1

Answer #1

Solution

Answer-5.75%

Current stock price=Coupon payment/cost of financing

Coupon=Coupon rate*Par value=5%of100=$5

Putting value in formula

87=5/cost of financing

Cost of financing=5/87=0.057471

Thus cost of financing=5.75%

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Answer 2

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