Which of the following states the component cost preferred stock? (f is the flotation cost percent, D_p is the annual preferred dividend, and k_p is the preferred's market yield on the preferred stock?

Question

Quizplus · Accepted Answer

The component cost of preferred stock is calculated using the formula kS = D / P + f, where kS is the cost of preferred stock, D is the annual preferred dividend, P is the net issuance proceeds, and f is the flotation cost percent. Rearranging the formula, we get D = kS * P - f. Since P = D / kS, we can substitute it into the formula to get D = kS * (D / kS) - f. Simplifying it, we get D = D - f, which gives us the formula D = kS * P(1 - f). Thus, the correct formula for the component cost of preferred stock is kS * P(1 - f). Option D matches this formula, so it is the correct choice.

Which of the Following States the Component Cost Preferred Stock ÷\div÷

Which of the Following States the Component Cost Preferred Stock $\div$