A firm’s preferred stock currently sells for $90 per share and pays a dividend of $9 per share. However, the firm will only receive $85 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of Preferred stock? 10.6% 10.9% 11.8% 10.0%

A firm’s preferred stock currently sells for $90 per share and pays a dividend of $9 per share. However, the firm will only receive $85 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of Preferred stock? 10.6% 10.9% 11.8% 10.0%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

		10.6%
		10.9%
		11.8%
		10.0%

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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