Question

The well derrick has 5.5 percent preferred stock outstanding that sells for $48 a share. this stock was originally issued at $45 per share. what is the cost of preferred stock if the firm’s tax rate is 35 percent?

Answer 1

To solve:
Percentage of preferred stock outstanding = 5.5%
Price per share = $48

Price of preferred stock = (.055 x $100)/$48
Price of preferred stock = .1146

To turn into a percentage:
% = (.1146)(100) 
11.46%