Jose's Cantinas Incorporated plans to issue preferred stock at a price of $48 per share. The annual dividend will be $5.10 per share and issuance costs are expected to be $3.00 per share. What is the cost of raising funds with preferred stock for Jose's?

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's $5.10 / ($48 - $3) = $5.10 / $45 = 11.33%.

Jose's Cantinas Incorporated Plans to Issue Preferred Stock at a Price