Question

At the present time, Galbraith Enterprise does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Galbraith has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $10 per share. If the investors pay $110.22 per share for their investment, then Galbraith's cost of preferred stock (rounded to four decimal places) will be

Answer 1

Answer:

Galbraith's cost of preferred stock would be 9.0728%

Explanation:

Hi, first let´s introduce the equation ti find the cost of a preferred stock

$K_{p.stock} =\frac{Dividend_{p.stock} }{Price_{p.stock} }$

Therefore, the cost of Galbraith stock is:

$K_{p.stock} =\frac{10}{110.22} =0.090728$

So, the cost of this preferred stock is 9.0728%

Best of luck.