The cost of equity: Melba's Toast has a preferred share issue outstanding with a current price of $19.50. The firm is expected to pay a dividend of $2.34 per share a year from today. What is the firm's cost of preferred equity?

Question

Quizplus · Accepted Answer

The cost of preferred equity is calculated as the dividend divided by the current price: $2.34 / $19.50 = 0.12 or 12.00%.

The Cost of Equity: Melba's Toast Has a Preferred Share