Overland's preferred stock was issued 3 years ago to yield 10% of its par value of...
Overland's preferred stock was issued 3 years ago to yield 10% of its par value of $30. The stock is selling in the market today for $50. Assuming that Overland pays 15% in flotation costs on new security issues, calculate the cost of preferred stock financing.
| a. |
9.2% |
|
| b. |
6.3% |
|
| c. |
8.5% |
|
| d. |
7.1% |
Homework Answers
Cost of preferred stock
=Preferred dividend/current price net of floatation costs
=(10%*30)/(50*0.85)
=7.1%
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