The preferred stock of Dolphin Pools pays an annual dividend of $6.25 a share and sells for $42 a share. The tax rate is 35 perc

Question

Reptile [31]

3 years ago

13

The preferred stock of Dolphin Pools pays an annual dividend of $6.25 a share and sells for $42 a share. The tax rate is 35 perc

ent. What is the firm's cost of preferred stock?

Business

1 answer:

coldgirl [10] · Answer 1 · 2022-02-13T16:41:36+03:00

coldgirl [10]3 years ago

8 0

Answer:

kp = Do/Po

Kp = $6.25/$42

kp = 0.1488 = 14.88%

Explanation: Cost of preferred stock is equal to fixed dividend paid divided by the current market price. Preference shares are not tax-deductible. Hence, tax will not be considered in our calculation.