Suppose a company can issue new preferred shares with a par value of $100 at $98. This preferred stock issue has annual dividends of $5. The estimate of the company's cost of preferred equity is closest to:

Question

Quizplus · Accepted Answer

The cost of preferred equity is calculated as the annual dividend divided by the net proceeds from issuing the stock. Here, it is $5 / $98 = 5.10%.

Suppose a Company Can Issue New Preferred Shares with a Par