Question

The preferred stock of Nadine Fashions pays an annual dividend of $2.25 a share and sells for $38.75 a share. The tax rate is 32 percent. What is the firm's cost of preferred stock? 9.5% 7.26% 8.39% 5.81% 10.14%

Answer 1

The cost of preferred stock is 5.81%

Step-by-step explanation:

Hi, well, the cost of a preferred stock follows this formula.

R(p) = Div/P

where:

Div: Dividend of the preferred stock

P: Price of the preferred stock

therefore, the cost of the preferred stock would be.

R(p) = 2.25/38.75 = 5.81%

Best of luck