The preferred stock of Pollard's Pools pays an annual dividend of $5.50 a share and sells for $42 a share. The tax rate is 34 percent. What is the firm's cost of preferred stock? a) 12.28 percent b) 13.10 percent c) 15.07 percent d) 15.59 percent e) 16.47 percent

The preferred stock of Pollard's Pools pays an annual dividend of $5.50 a share and sells for $42 a share. The tax rate is 34 percent. What is the firm's cost of preferred stock? a) 12.28 percent b) 13.10 percent c) 15.07 percent d) 15.59 percent e) 16.47 percent

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 10P

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Question

Cost of preferred stock

The preferred stock of Pollard's Pools pays an
annual dividend of $5.50 a share and sells for
$42 a share. The tax rate is 34 percent. What is
the firm's cost of preferred stock?
a) 12.28 percent
b) 13.10 percent
c) 15.07 percent
d) 15.59 percent
e) 16.47 percent

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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