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A company's perpetual preferred stock currently trades at $87.50 per share, and it pays an $8.00 annual dividend. IF the company were to sell a new preferred issue, it would incur a floattion cost eof 5.00% of the issue price. What is the firm's cost of preferred stock?

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agustinsr99

Answer: The correct answer is 9,62%.

Explanation: To know how much it costs to issue preferred shares to the company, we must use the formula:

[tex]\frac{Div}{Price - Floattion  cost}[/tex]

Applying the formula with the statement data:

[tex]\frac{8}{87,50 . (1-0,05)}[/tex] = 0,0962 = 9,62%.

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