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tresset_1 [31]
3 years ago
8

A company’s perpetual preferred stock has a par value of $65 per share and it pays a dividend rate of 6.25% per year. The prefer

red stock’s market value is $58.63 per share and the company’s tax rate is 31%. If the flotation costs for preferred stock are 6.5%, what is the company’s annual cost of new preferred stock financing?
Business
1 answer:
V125BC [204]3 years ago
5 0

Answer:

Cost of preferred stock=7.41 %

Explanation:

<em>A preferred stock entitles its investor to a fixed amount of dividend for the foreseeable future. The dividend payable by a preferred stock is similar to a perpetuity. Hence, the price of the stock would be the same as the present value of the dividend payable for the foreseeable future. </em>

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

Cost of preferred stock = D/P(1-f) × 100

D- Preference dividend

P- stock price

F- flotation cost

Preference dividend = Coupon rate × Nominal value

DATA

Nominal value = $65

Stock price = $58.63  

Dividend rate=6.25%

Flotation cost = 6.5%

Preference dividend = 6.25%× 65 = 4.063

Cost of preferred stock =(4.063 /58.63×(1-0.065) × 100 = 7.41  %

Cost of preferred stock=7.41 %

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6 0
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In November 2016, General Motors produced a car that was delivered to a local dealership in December 2016. The auto was sold to
horsena [70]

Answer:

It will be counted as investment in 2016 and negative investment in 2017.

Explanation:

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2 years ago
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6 0
3 years ago
The current value of a property is $60,000. For real estate tax purposes, the property is assessed at 30 percent of its current
Damm [24]

Answer:

Explanation:

Given:

Current value, C = $60000

Assessed value, A = 30 percent of its current value

= 30% × C

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4 0
3 years ago
The financial reporting for private not-for-profit entities primarily focuses on: Multiple Choice basic information for the orga
Romashka [77]

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