Manitou Inc has preferred stock paying an annual dividend of $2.25,and common stock paying an annual dividend of $0.85.If the current preferred stock price is $18.75,what is Manitou's cost of preferred stock capital?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the dividend payment divided by the current market price of the stock.

Dividend payment = $2.25 
Current market price = $18.75

Cost of preferred stock capital = $2.25/$18.75 = 0.12 or 12%

Therefore, the best choice is B) 12% as it is the calculated cost of preferred stock capital.

Manitou Inc Has Preferred Stock Paying an Annual Dividend of $2.25,and