Question

The 7 percent preferred stock of midwest muffler and towing is selling for $65 per share. what is the firm's cost of preferred stock if the tax rate is 21 percent and the par value per share is $100?

Answer 1

10.77 percent  is the firm's cost of preferred stock if the tax rate is 21 percent and the par value per share is $100.

Unitary method is a process by which we find the value of a single unit from the value of multiple units and the value of multiple units from the value of a single unit. It is a method that we use for most of the calculations in math.

The cost is calculated by the formula by :-

Cost = Annual dividend paid / Price of preferred stock per share

Substituting the given values in the formula we get,

cost = (0.07 x 100)/65

cost = 10.77 percent.

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