Respuesta :
Answer:
The company's cost of preferred stock is 11.86%
Explanation:
The cost of preferred stock implies the interest payable to preferred stockholders on yearly basis,which is calculated using the formula below:
price of the preferred stock=annual dividend/cost of preferred stock
price of preferred stock is $59
annual dividend is $7
by changing the subject of the formula
cost of preferred stock=annual dividend/price of preferred stock]
cost of preferred stock=$7/$59
=11.86%
The company's cost of preferred stock, rp is 11.86%.
Given that,
- Torch Industries can issue perpetual preferred stock at a price of $59.00 a share.
- The stock would pay a constant annual dividend of $7.00 a share.
Based on the above information, the calculation is as follows:
= $7 ÷$59
= 11.86%
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