Diggin Tools just issued new preferred stock, which sold for P85 in the stock markets. Holders of the stock will receive an annual dividend equal to P9.35. The flotation costs associated with the new issue were 6 percent and Diggin's marginal tax rate is 30 percent. What is Diggins cost of preferred stock, kps?

Diggin Tools just issued new preferred stock, which sold for P85 in the stock markets. Holders of the stock will receive an annual dividend equal to P9.35. The flotation costs associated with the new issue were 6 percent and Diggin's marginal tax rate is 30 percent. What is Diggins cost of preferred stock, kps?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 4PROB

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Question

12.Diggin Tools just issued new preferred stock, which sold for P85 in the
stock markets. Holders of the stock will receive an annual dividend equal
to P9.35. The flotation costs associated with the new issue were 6 percent
and Diggin's marginal tax rate is 30 percent. What is Diggins cost of
preferred stock, kps?

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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