Question

The 6.5 percent preferred stock of Spotted Cow Brewery is selling for $42 a share. What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100

Answer 1

Answer:

the cost of the preferred stock of the firm is 0.1548 or 15.48%

Explanation:

The computation of the cost of the preferred stock of the firm is shown below:

But before that the preference dividend is

= $100 × 6.5%

= $6.50

Now the cost of the preferred stock is

= Dividend ÷ current price of the preferred stock

= $6.50 ÷ $42

= 0.1548 OR 15.48%

hence, the cost of the preferred stock of the firm is 0.1548 or 15.48%