Coral Inc.'s preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. What is the firm's cost of newly issued preferred stock? (Round off the answer to two decimal places.)
A) 11.15 percent
B) 12.50 percent
C) 16.45 percent
D) 10.52 percent
E) 13.46 percent

Question

Quizplus · Accepted Answer

The cost of newly issued preferred stock can be calculated using the following formula:
Cost of new preferred stock = Dividend / Net proceeds
= $10 / $80
= 0.125 or 12.50%
Therefore, the answer is B.

Coral Inc's Preferred Stock Currently Sells for $90 a Share and and Pays