Ningbo Shipping has determined it can issue preferred stock at $115 per share par value. The stock will pay a $12 annual dividend. The cost of issuing and selling the stock is $3 per share. The cost of the preferred stock is
A) 6.4%.
B) 9.4%.
C) 10.7%.
D) 14.7%.

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the annual dividend divided by the net proceeds per share. The net proceeds per share is the issue price minus the cost of issuing. So, ($12) / ($115 - $3) = $12 / $112 = 0.1071 or 10.7%.

Ningbo Shipping Has Determined It Can Issue Preferred Stock at $115