Young's Specialized Cruises plans to issue preferred stock at a price of $25 per share. The annual dividend will be $2.18 per share and issuance costs are expected to be $2.00 per share. What is the cost of raising funds with preferred stock for Young?

Question

Quizplus · Accepted Answer

The cost of preferred stock is calculated as the annual dividend divided by the net proceeds per share (price per share minus issuance costs). Here, it is $2.18 / ($25 - $2) = $2.18 / $23 = 0.0948 or 9.48%.

Young's Specialized Cruises Plans to Issue Preferred Stock at a Price