Question

Dewyco has preferred stock trading at per share. The next preferred dividend of is due in one year. What is​ Dewyco's cost of capital for preferred​ stock?

Answer 1

Answer:

6%

Explanation:

some information is missing:

market price of preferred stock = $50

preferred stock dividend = $3

preferred stocks' cost of capital = preferred stock dividend / market price of preferred stock = $3 / $50 = 0.06 = 6%

Preferred stocks' cost of capital is not affected by any corporate tax rates, since preferred dividends are considered paid in capital and cannot be deducted as interests in the income statement.