Question

102M in preferred stock, $85M in book value of common stock, and $120M in debt selling at 96.7%. The common stock has a market to book ratio of 1.75, a yield to maturity on its debt of 5.4%, and a return on its preferred stock of 9.45%. The company is sitting in the 18% tax bracket, has a beta of 1.25 on its common stock, the market return is 15% and the risk free rate is 3.24%. What is the Cost of Preferred Stock

Answer 1

Answer:

9.45%

Explanation:

the cost of preferred stock is given by the question.

the formula that we can use to calculate the cost of preferred stock = preferred dividends / market price per preferred stock

remember that preferred dividends are paid with after tax earnings, so they do not reduce taxes