Question

9. Warephase Corporation has preferred stock outstanding. The stock has a 12% dividend rate. The stock’s...

9. Warephase Corporation has preferred stock outstanding. The stock has a 12% dividend rate. The stock’s market price is $80 per share, and its par value is $75. If new shares are issued, the firm will pay $2 per share in flotation costs. The corporate tax rate is 21%. What is the company’s cost of preferred stock financing?

a) 10% c) 9.12% e) 11.54%

b) 12.5% d) 9.74%

Homework Answers

Answer #1

Cost of Preferred Stock Financing

Annual Preferred Dividend

Annual Preferred Dividend = Par Value x Dividend Rate

= $75 x 12%

= $9.00 per share

Market Price per share = $80.00 per share

Flotation Cost per share = $2.00 per share

Cost of Preferred Stock Financing = [Annual Preferred Dividend / (Market Price per share – Flotation cost per share)] x 100

= [$9.00 / ($80.00 - $2.00)] x 100

= [$9.00 / $78.00] x 100

= 11.54%

“Therefore, the company’s cost of preferred stock financing would be (e). 11.54%”

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Rhodok Corporation has preferred stock outstanding. The stock has an 11% dividend rate. The stock’s market...
Rhodok Corporation has preferred stock outstanding. The stock has an 11% dividend rate. The stock’s market price is $80 per share, and its par value is $75. If new shares are issued, the firm will pay $2 per share in flotation costs. The corporate tax rate is 21% What is the company’s cost of preferred stock financing?
A company has 10,000 shares of 7% preferred stock issued and outstanding. The preferred stock has...
A company has 10,000 shares of 7% preferred stock issued and outstanding. The preferred stock has a par value of $100 per share. This means that: A. If the Board of Directors declares a dividend, the potential dividend will be $7 for each preferred share. B. The firm is obligated to buy-back the preferred shares at a 7% markup above the par value.
) Hankins Corporation has 8 million shares of common stock outstanding, 920,000 shares of preferred stock...
) Hankins Corporation has 8 million shares of common stock outstanding, 920,000 shares of preferred stock outstanding, and 180,000 of 5.5 percent semiannual bonds outstanding, par value $1,000 each. The annual dividend for the preferred stocks is $4.8 per share. The common stock currently sells for $39 per share and has a beta of 1.26, the preferred stock currently sells for $80 per share, and the bonds have 25 years to maturity and sell for 98 percent of par. The...
Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period....
Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a common stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders...
The Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock...
The Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8.00, and 200,000 - $1000 par value bonds with a 10% coupon. The bonds pay interest semi-annually, and have 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds for $950.62 each, and the preferred stock at $74 per share. The estimated required rate of return on the market is 13%,...
Twitter Corporation has 13 million shares of common stock outstanding, 900,000 shares of 9 percent preferred...
Twitter Corporation has 13 million shares of common stock outstanding, 900,000 shares of 9 percent preferred stock outstanding and 250,000 ten percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for Rs 34 per share and has a beta of 1.15, the preferred stock currently sells for Rs. 80 per share, and the cost of bonds is 11.20%. The market risk premium is 11.5 percent, T-bills are yielding 7.5 percent, and the firm's tax rate is...
Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7% preferred...
Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7% preferred stock outstanding, and 175,000 of 8.2% semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $64 per share and has a beta of 1.2, the preferred stock currently sells for $108 per share, and the bonds have 15 years to maturity and sell for 96% of par. The market risk premium is 6.8%, T-Bills are yielding 5.5%, and the...
4)  Wedge Corporation has the following capital stock outstanding: Common stock, par $1, with 250,000 shares outstanding...
4)  Wedge Corporation has the following capital stock outstanding: Common stock, par $1, with 250,000 shares outstanding for a total par value of $250,000. 8% preferred stock, par $100, with 5,000 shares outstanding, cumulative, for a total par value of $500,000.  They have not received dividends in 2 years prior to this current year.              Part A:             A cash dividend of $150,000 was declared and paid near the end of the current year. Calculate, showing supporting calculations, the current year’s dividend and...
Valuing preferred stock Companies that have preferred stock outstanding promise to pay a stated dividend for...
Valuing preferred stock Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds,...
question1- ChromeWoeld Industries finances its project with 15% debt, 5% preferred stock and 80% common stock....
question1- ChromeWoeld Industries finances its project with 15% debt, 5% preferred stock and 80% common stock. The company has 6 year 3% coupon bonds selling at 101 ( par is 100) The company’s preferred stock has a 5% preferred dividend on a par value of 100 that is currently priced at 99. Preferred has a flotation cost of .07. The company’s common stock currently sells for $25.50 a share and has a dividend that is currently $1.80 a share and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT