MINDTAP O Jeanelle v Q Search this course From Cengage Chec

MINDTAP O ? Jeanelle v Q Search this course From Cengage Check My Work (3 remaining) 8. Click here to read the eBook: Cost of Preferred Stock, 10. COST OF PREFERRED STOCK INCLUDING 12FLOTATION 13 Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently 14 15 16. selling for $99.00, but flotation costs will be 6% of the 17. market price, so the net price will be $93.06 per 1S. share. What is the cost of the preferred stock,

Solution

Cost of preferred Shares = Annual dividend/Current Price

However, in case of new issuances, the current price used is net of any floatation costs.

So, in the case above,

cost of preferred stock (new issuance) = 11/93.06 = 11.82%