Question

A company’s component cost of preferred stock is: a. The cost to the company to repurchase the company’s preferred stock b. The after-tax cost of new debt c. The company’s preferred dividend divided by the current preferred stock price d. The company’s preferred stock has no cost since the payment of dividends is not tax deductible by the company e. None of the above

Answer 1

The company’s preferred dividend divided by the current preferred stock price

Step-by-step explanation:

Preference shares are the shares which are prioritised over equity shares, regarding dividend payment or capital refund at time of company liquidation.

A company’s component cost of preferred stock : It is the price, in terms of dividend return company pays per unit preferred stock.

So, company's cost of preferred stock

Current Preferred Dividend / Current preferred stock price