Preferred stock of Ford Motors pays a dividend of $2.5 each year and trades at a price of $25.What is the cost of preferred stock capital for Ford?

Question

Quizplus · Accepted Answer

The cost of preferred stock capital can be calculated by dividing the annual dividend by the current market price of the preferred stock. Therefore, the cost of preferred stock capital for Ford can be calculated as follows:

Cost of Preferred Stock Capital = Annual Dividend / Current Market Price 
= $2.5 / $25 
= 0.10 or 10%

Therefore, the best choice for the cost of preferred stock capital for Ford is C) 10%.

Preferred Stock of Ford Motors Pays a Dividend of $2