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PSYCHO15rus [73]
2 years ago
14

Bosio Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to

sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC
Business
1 answer:
lozanna [386]2 years ago
6 0

Answer:

The company's cost of preferred stock is 9.08%

Explanation:

To calculate the cost of preferred stock we would use the following formula:

cost of preferred stock =  <u>        dividend        </u>

                                          Price×(1-Flotation)

According to the details of the letter, the dividend is $8.50, the price is $97.50 per share and the flotation is 4.00%

So, cost of preferred stock =<u>     $8.50      </u>

                                               $97.50×(1-4%)

                                            =  <u>     $8.50      </u>

                                                    $93.6

                                            = 9.08%. Cost of preferred stock.      

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