The 7.5 percent preferred stock of Rock Bottom Floors is selling for $84 a share.What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend divided by the current price. The dividend is 7.5% of the par value ($100), which is $7.50. The cost of preferred stock is $7.50 / $84 = 8.93%. The tax rate does not affect the cost of preferred stock.

The 75 Percent Preferred Stock of Rock Bottom Floors Is Selling