XYZ Corporation is trying to determine the appropriate cost of preferred stock to use in determining the firm's cost of capital.This firm's preferred stock is currently selling for $29.89 and pays a perpetual annual dividend of $2.60 per share.Compute the cost of preferred stock for XYZ.

Question

Quizplus · Accepted Answer

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

Cost of Preferred Stock = Annual Dividend/Current Market Price

So, the cost of preferred stock for XYZ Corporation would be:

Cost of Preferred Stock = $2.60/$29.89 = 0.087 or 8.7%

Therefore, the best choice for the cost of preferred stock is C) 8.7%.

XYZ Corporation Is Trying to Determine the Appropriate Cost of Preferred