Question

The company could issue preferred stock. The stock sells for RM105, however if new stock is issued, the company would receive only RM88. The par value of the stock is RM100 and the dividend is RM10. What is the cost of capital for the preferred stock to the company?

Answer 1

Answer: 11.36%

Explanation:

The Cost of capital is calculated as;

= (Dividend rate / Net Stock price) * 100

= (10 / 88) * 100

= 11.36%

Net Stock price is used as it shows a more accurate depiction of the cost of capital since it uses the actual amount that the company received.

Answer 2

Answer:

11.36%

Explanation: