Question

LUVFINANCE, Inc. is estimating its WACC. The firm could sell, at par, $100 preferred stock that pays a 10 percent annual dividend and incurs 6.19% flotation costs. What is the cost of new preferred stock financing

Answer 1

$10.66

Step-by-step explanation:

Calculation to determine the cost of new preferred stock financing

Cost of new preferred stock financing=(100*10%)/(100*(1-0.0619))

Cost of new preferred stock financing=10/(100*(1-0.0619))

Cost of new preferred stock financing=10/(100*0.9381)

Cost of new preferred stock financing=10/93.81

Cost of new preferred stock financing=$10.66

Therefore the cost of new preferred stock financing is $10.66