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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

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?

Summary Introduction

To determine: The company’s cost of preferred stock, rp.

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.

Explanation

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,

Cost of Preferred Stock=DPPP

Where,

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

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