Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
COST OF PREFERRED STOCK Tunney Industries can issue perpetual preferred stock at a price of $47.50 a share. The Stock would pay a constant annual dividend of $3.80 a share. What a the company’s cost of preferred stock, rp?
To determine: The company’s cost of preferred stock,
Cost of Preferred Stock:
The return earned by firm’s preferred stock holders from the investment in preferred stock is a cost of preferred stock. It is computed by dividing dividend received on preferred stock by the current price of the preferred stock.
Given,
Dividend per share is $3.80 per share.
Current price of stock is $47.50.
The formula to calculate the cost of preferred stock is,
Where,
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