BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
16 views

COST OF PREFERRED STOCK INCLUDING FLOTATION Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $108.50, but flotation costs will be 5% of the market price, so the net price will be $103.08 per share. What is the cost of the preferred stock, including flotation?

Summary Introduction

To determine: The cost of preferred stock including flotation.

Introduction:

Cost of Preferred Stock:

The return earned by firm’s preferred stockholders from the investment in preferred stock is a cost of the preferred stock. It is computed by dividing the dividend received on preferred stock by the current price of the preferred stock.

Explanation

Given information:

Dividend per share is $11 per share.

Current price of stock is $108.50.

The formula to calculate the cost of preferred stock is,

Cost of Preferred Stock=DPPP

Where,

  • DP is the preferred dividend.
  • PP is the current price of preferred stock.

Substitute $11 for DP and $103.08 for PP (Working note).

Cost of preferred stock=$11$103

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are the major elements of SWOT analysis?

Foundations of Business (MindTap Course List)

What is inflation and what causes it?

Brief Principles of Macroeconomics (MindTap Course List)

What is virtualization?

Accounting Information Systems

STOCK SPLIT Gamma Medicals stock trades at 90 a share. The company is contemplating a 3-for-2 stock split. Assu...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)