Chapter 11, Problem 3PROB

Summary Introduction

Cost of preferred stock:

It is the cost to be incurred for issuing the preferred stock. Cost of preferred is the ratio of the preference dividend to price of the preference share.

Calculate the preferred stock as follows:

$\text{Cost of preferred stock}=\frac{\text{Preference dividend}}{\text{Current price}}$

BC plans to issue to preferred stock with par $120 par value and preference dividend rate 5%. Current market value is $80 and expected dividend is $75