Question

Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $75 a share with an annual dividend of $6.00 a share. Ignoring flotation costs, what is the company's cost of preferred stock, rps

Answer 1

Answer: 6%

Explanation:

Based on the information given, when the flotation costs is ignored, the company's cost of preferred stock will be calculated thus:

Cost of preferred stock = Dividend on preferred stock / Price of preferred stock

Cost of preferred stock = 4.5/75 = 0.06 = 6%

Therefore, the cost of preferred stock is 6%.