Question

Red Melon has preferred stock that pays a dividend of $5.00 per share and sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting (or flotation) cost of 1.70%. How much will Red Melon pay to the underwriter on a per-share basis

Answer 1

$1.7 per Share

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

Dividend paid = $5 per share

Selling price = $100 per share

Underwriting cost = 1.7%

We can calculate the amount pay to the underwriter by using following formula:-

Red Melon Pay to the Underwriter = Selling Price Per Share × Underwriter Cost

= $100 × 1.70%

= $1.7 per Share