The cost of equity: 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?

Question

Quizplus · Accepted Answer

Cost of preferred equity is calculated as dividend / preferred share price. So, cost of preferred equity = $1.86 / $26.57 = 0.07 or 7.00%. Therefore, the answer is B.

The Cost of Equity: Wally's War Duds Has a Preferred