Question

At the present time, Ferro Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Ferro has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $12 per share. If the investors pay $98.90 per share for their investment, then Ferro’s cost of preferred stock (rounded to four decimal places) will be .

Answer 1

cost of preferred stock = 12.1334 %

Step-by-step explanation:

given data

perpetual dividend = $12 per share

investors pay = $98.90 per share

to find out

Ferro’s cost of preferred stock

solution

we apply here preferred stock cost formula that is express as

cost of preferred stock = dividend per share ÷ stock price × 100 ................1

put here value we get

cost of preferred stock =
`(12)/(98.90)` × 100

cost of preferred stock = 12.1334 %