Question 1 5 p Bostwick Companys perpetual preferred stock s

Question 1 5 p Bostwick Company\'s perpetual preferred stock sells for $85 per share, and it pays an $690 annual dividend. If the company were to sell a new preferred issue, it a notation cost of 4% of the price paid by investors. What is the company\'s cost of preferred stock for use in calculating the weighted average cost of would incur capital (WACC)? Your answer should be between 7.20 and 11.52, rounded to 2 decimal places, with no special characters.

Solution

Cost of Preferred Stock = Dividend / [ Price * (1- Floatation COst)]

= $ 6.90 / [ $ 85 * ( 1-0.04)]

=8.455882353%

= 8.46

Hence the correct answer is 8.46