Question

Dewyco has preferred stock trading at $50 per share. The next preferred dividend of $ 5is due in one year. What is​ Dewyco's cost of capital for preferred​ stock?

Answer 1

r = 0.1 or 10%

Step-by-step explanation:

The cost of capital of a preferred stock can be calculated by dividing the amount of dividend paid or payable by the preferred stock by the price of the preferred stock. The amount of dividend paid by the preferred stock is always constant. The formula for cost of capital for preferred stock is as follows,

r = Dividend / Price

Where,

• r is the cost of preferred stock

r = 5 / 50

r = 0.1 or 10%