The preferred stock of Dolphin Pools pays an annual dividend of $5.25 a share and sells for $48a share.The tax rate is 35 percent.What is the firm's cost of preferred stock?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the price per share. So, $5.25 / $48 = 0.109375 or 10.94 percent. The tax rate does not affect the cost of preferred stock.

The Preferred Stock of Dolphin Pools Pays an Annual Dividend