Question

Torch Industries can issue perpetual preferred stock at a price of $56.00 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, rp

Answer 1

Answer:

• Cost of preferred stock = 12.5 %

Explanation:

A preferred stock entitles its owner to a fixed amount of dividend. It is calculated as follows:

Cost of preferred stock = (Preference dividend/stock price ) × 100

Cost of preferred stock = 7/56 × 100 =12.5 %

Cost of preferred stock = 12.5 %