The 7 percent preferred stock of Midwest Muffler and Towing is selling for $65 per share.What is the firm's cost of preferred stock if the tax rate is 21 percent and the par value per share is $100?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the current price. The dividend is 7% of the par value, which is $7. The cost of preferred stock is $7 / $65 = 10.77%. The tax rate does not affect the cost of preferred stock.

The 7 Percent Preferred Stock of Midwest Muffler and Towing