SW Ink's preferred stock, which pays a $5 dividend each year, currently sells for $62.50.The company's marginal tax rate is 40 percent.What is the cost of preferred stock, rps, that should be included in the computation of the SW Ink's weighted average cost of capital (WACC)?
A)8.0%
B)4.8%
C)3.2%
D)The dividend growth rate is needed to compute rps; so not enough information is given to answer this question.
E)None of the above is correct.

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the current price. So, rps = $5 / $62.50 = 0.08 or 8.0%.

SW Ink's Preferred Stock, Which Pays a $5 Dividend Each