Wilson's Clothing has 8 percent preferred stock outstanding which is selling for $58 a share. What is Wilson's cost of preferred stock if the tax rate is 34 percent?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the current price. The tax rate does not affect the cost of preferred stock. The dividend is 8% of the par value (assumed to be $100), which is $8. The cost is $8 / $58 = 13.79%.

Wilson's Clothing Has 8 Percent Preferred Stock Outstanding Which Is