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Perpetual preferred stock from Franklin Inc. sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?

Respuesta :

Answer:

cost of preferred stock   = 9.08%

Explanation:

given data

sells = $97.50 per share

pays annual dividend =  $8.50

flotation cost = 4.00% of price paid

solution

we get her  cost of preferred stock that is express as

cost of preferred stock  = [tex]\frac{Annual\ Dividend}{(Price \times (1 - flotation cost))}[/tex]    .......................1

put here value and we will get

cost of preferred stock   = [tex]\frac{8.50}{(97.50 \times (1-0.04))}[/tex]

cost of preferred stock   = [tex]\frac{8.50}{93.60}[/tex]  

cost of preferred stock   = 9.08%