Nico Trading Corporation is considering issuing preferred stock. The preferred stock would have a par value of $75 and a preferred dividend of 7.5 percent of par. In order to issue the stock, Nico trading would have to pay flotation costs of 6 percent of par value. Given this information, Nico Trading's cost of preferred stock would be 7.5 percent.

Question

Quizplus · Accepted Answer

The cost of preferred stock includes both the preferred dividend and the flotation costs. In this case, the flotation costs are 6 percent of par value, which would increase the cost of preferred stock to more than 7.5 percent.

Nico Trading Corporation Is Considering Issuing Preferred Stock