Suppose a company can issue new preferred shares with a par value of $100 at $100. 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 can be calculated using the formula: Cost of Preferred Equity = Dividend per Share / Price per Share. Given the annual dividends of $5 and the issue price of $100, the cost is $5 / $100 = 0.05 or 5%.

Suppose a Company Can Issue New Preferred Shares with a Par