Question

Snowmobiles, inc. is currently selling 9 percent preferred stock at $66.87 per share. if the par value is $100, what is the cost of preferred stock to the firm?

O 6.73 percent
O 9.00 percent
O 12.23 percent
O 13.46 percent

Answer 1

The cost of preferred stock to Snowmobiles, Inc. is 13.46 percent. Therefore correct option is D

Step-by-step explanation:

The question is asking us to calculate the cost of preferred stock to Snowmobiles, Inc. The cost of preferred stock is the dividend the company must pay to preferred shareholders, expressed as a percentage of the share price.

Given that the company is selling 9 percent preferred stock with a par value of $100 at a price of $66.87, we can use the following formula to determine the cost of preferred stock:

Cost of Preferred Stock (%) = (Annual Preferred Dividend / Price Per Share) x 100.

Plugging in the values, we get:

Cost of Preferred Stock (%) = (9% of $100 / $66.87) x 100

= (0.09 x $100 / $66.87) x 100

= 13.46 percent.