The Dry Well has 6.85 percent preferred stock outstanding with a market value per share of $79, a stated value of $100 per share, and a book value per share of $29. What is the cost of preferred stock?

Question

The Dry Well has 6.85 percent preferred stock outstanding with a market value per share of $79, a stated value of $100 per share,  and a book value per share of $29. What is the cost of preferred stock?

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the annual dividend divided by the market value per share. The annual dividend is the stated value multiplied by the dividend rate. The dividend rate is 6.85%. The stated value is $100 per share. The market value per share is $79. Therefore, the annual dividend is $6.85. The cost of preferred stock is $6.85 / $79 = 8.67%.

The Dry Well Has 6