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natima [27]
4 years ago
7

A firm issued $15 million in preferred stock at a price of $3.25 per share. The preferred shares carry a 13% dividend, or $0.43

annually. After paying fees and costs, the firm realizes $2.89 per share issued. What is the cost of capital for this issuance of preferred stock?
Business
1 answer:
lisabon 2012 [21]4 years ago
5 0

Answer:

14.8%

Explanation:

Cost of capital for preferred stock can be calculated by a simple formula

Formula: Cost of preferred capital = dividend/(Current price - floatation cost)

As you can see in the question data current price - floatation cost and dividend is already given as $2.89 and $0.43 respectively. We just need to put values in formula.

Cost of preferred capital = $0.43/$2.89 x 100

Cost of preferred capital = 14.8%

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