Question

​Jensen's Travel Agency has a 7 percent preferred stock outstanding that is currently selling for​ $48 a share. The preferred stock has a​ $100 par value. The market rate of return is 10 percent and the​ firm's tax rate is 34 percent. What is the​ Jensen's cost of preferred​ stock?

Answer 1

$20.83

Step-by-step explanation:

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

Cost of preferred stock = (Dividend × par value) ÷ (current selling price) × 100

= (10% × 100) ÷ ($48) × 100

= 10 ÷ 48 × 100

= $20.83

Simply we divide the dividend by the current selling price so that the cost of preferred stock can be computed

All other information which is given is not relevant. Hence, ignored it