The Well Derrick has 6.3 percent preferred stock outstanding that sells for $57 a share. This stock was originally issued at $45 per share and has a stated value of $100 per share. What is the cost of preferred stock if the relevant combined tax rate is 23 percent?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the current price. The dividend is 6.3% of the stated value ($100), which is $6.30. The cost is $6.30 / $57 = 0.1105 or 11.05%. The tax rate does not affect the cost of preferred stock.

The Well Derrick Has 6