Question

The 5.25 percent preferred stock of Robert Bruce Security is selling for $50.26 a 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?
Multiple Choice
8.57 percent
9.20 percent
10.45 percent
11.86 percent
Seved
10.21 percent

Answer 1

The firm's cost of preferred stock if the tax rate is 21 percent and the par value per share is $100 is: 10.45 percent.

Cost of preferred stock

Using this formula

Preferred stock =( Preferred stock × Par value per share)/Sales per share

Let plug in the formula

Preferred stock = (.0525 × $100)/$50.26

Preferred stock=5.25/$50.26

Preferred stock= .10445×100

Preferred stock= 10.445%

Preferred stock=10.45 percent (Approximately)

Therefore the firm's cost of preferred stock if the tax rate is 21 percent and the par value per share is $100 is: 10.45 percent.

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