A firm’s preferred stock currently sells for $90 per share and pays a dividend of $9 per share. However, the firm will only receive $85 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of Preferred stock? 10.6% 10.9% 11.8% 10.0%

A firm’s preferred stock currently sells for $90 per share and pays a dividend of $9 per share. However, the firm will only receive $85 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of Preferred stock? 10.6% 10.9% 11.8% 10.0%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3P: Cost of Preferred Stock Duggins Veterinary Supplies can issue perpetual preferred stock at a price...

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Question

		10.6%
		10.9%
		11.8%
		10.0%

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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