Question

The preferred stock of Dolphin Pools pays an annual dividend of $5.25 a share and sells for $48 a share. The tax rate is 35 percent. What is the firm's cost of preferred stock?

Answer 1

Answer:

10.94 %

Explanation:

Calculation for the firm's cost of preferred stock

Using this formula

Preferred stock =Annual dividend /Sales amount of annual dividend per Shares

Let plug in the formula

Preferred stock = $5.25/$48

Preferred stock =0.1094 *100

Preferred stock= 10.94%

Therefore the firm's cost of preferred stock will be 10.94%