Wally's War Duds has a preferred share issue outstanding with a current price of $26.57. The firm is expected to pay a dividend of $1.86 per share a year from today. What is the firm's cost of preferred equity? Round your final answer to nearest percentage.

Question

Quizplus · Accepted Answer

The cost of preferred equity can be calculated using the formula: 
Cost of preferred equity = Preferred dividend / Current market price of preferred stock 
Therefore, cost of preferred equity = $1.86 / $26.57 = 0.07 or 7% 
Rounding to the nearest percentage, the answer is B, 7.00%.

Wally's War Duds Has a Preferred Share Issue Outstanding with a Current