question archive A company has preferred stock that can be sold for $21 per share
A company has preferred stock that can be sold for $21 per share
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A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of $3.5 per share. Flotation costs associated with the sale of preferred stock equal $1.75 per share. The company's marginal tax rate is 35%. Therefore, the cost of preferred stock is?
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The cost of Preferred stock =Dividend/ (preferred stock selling price - flotation cost)
The cost of Preferred stock = 3.50/ ( 21- 1.75)
The cost of Preferred stock =3.50 / 19.25
The cost of Preferred stock =18.18%
