Question

Torch Industries can issue perpetual preferred stock at a price of $71.00 a share. The stock would pay a constant annual dividend of $6.00 a share. What is the company's cost of preferred stock, rp

Answer 1

Answer:

The company's cost of preferred stock is 8.45%

Explanation:

The cost of preferred is the cost implication to the entity making  use of preferred stock finance which is similar to interest cost on debt financing.

Cost of preferred stock=dividend on preferred stock/market price of preferred stock.

dividend on preferred stock is $6.00

market price of preferred stock. is $71

Cost of preferred stock=$6.00/$71

cost of preferred stock=8.45%