Question

Sammy's Veterinary Supplies can issue perpetual preferred stock at a price of $64.50 a share with an annual dividend of $3.50 a share. Ignoring flotation costs, what is the company's cost of preferred stock, rps? Round your answer to two decimal places.

Answer 1

Cost of preferred stock:

Kps=Dps/P

where:

Kps= Cost of preferred stock

Dps=preferred dividend

P= Market price of preferred stock

Kps= $3.50/ $64.50

   = 0.0543*100

   = 5.43%.

In case of any query, kindly comment on the solution