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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

COST OF PREFERRED STOCK Torch Industries can issue perpetual preferred stock at a price of $57.00 a share. The stock would pay a constant annual dividend of 56.00 a share. What is the company's cost of preferred stock, rp?

Summary Introduction

To determine: The cost of the preferred stock.

Introduction:

Cost of Preferred Stock:

The return that is earned by of firm’s preferred stockholders from the investment in the 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 $6.

Current price of stock is $57.

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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