Question

The 10.9 percent preferred stock of Rock Bottom Floors is selling for $91 a share. What is the firm's cost of preferred stock if the tax rate is 44 percent and the par value per share is $100

Answer 1

Answer: 11.978%

Explanation:

From the question, we are informed that the 10.9 percent preferred stock of Rock Bottom Floors is selling for $91 a share. We are further informed that the tax rate is 44 percent and the par value per share is $100.

The firm's cost of preferred stock will be 10.9% multiplied by the par value per share and then divided by the share price of $91. This will be:

= (10.9% × 100)/91

= (0.109 × 100)/91

= 10.9/91

= 0.11978

= 11.978%