Tamin Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $14 per share. If the investors pay $134.26 per share for their investment, then Tamin’s cost of preferred stock (rounded to four decimal places) will be (10.9489, 9.3

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
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Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity.
 
Characteristics
Debt
Equity
Has a par, or face, value.
 
 
 
Failure to pay a preferred dividend does not send the firm into bankruptcy.
 
 
 
 
Consider the case of Tamin Enterprises:
 
At the present time, Tamin Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $14 per share. If the investors pay $134.26 per share for their investment, then Tamin’s cost of preferred stock (rounded to four decimal places) will be (10.9489, 9.3848, 9.9061, 10.4275) .
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