Ningbo Shipping has issued preferred stock at its $125 per share par value.The stock will pay a $15 annual dividend.The cost of issuing and selling the stock was $4 per share.The cost of Ningbo Shipping preferred stock is:

Question

Quizplus · Accepted Answer

The cost of preferred stock can be calculated using the formula:

Cost of preferred stock = Annual dividend / Net issuing price

The net issuing price is calculated as the par value of the stock minus the cost of issuing and selling the stock:

Net issuing price = $125 - $4 = $121

Therefore, the cost of preferred stock is:

Cost of preferred stock = $15 / $121 = 0.1239 or 12.4%

So, the correct answer is option C.

Ningbo Shipping Has Issued Preferred Stock at Its $125 Per