Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 10, Problem 14P
Summary Introduction
To determine: The cost of
Introduction:
Cost of Preferred Stock:
The return earned by firm’s preferred stockholders from the investment in preferred stock is a cost of the preferred stock. It is computed by dividing the dividend received on preferred stock by the current price of the preferred stock.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Preferred stock valuation Jones Design wishes to estimate the value of its out-standing preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 10.5%? Explain
Subject: Financial strategy & policy
Question No 3 (part ii)
Answer the following.
ii) XYZ Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $97.00; but flotation costs will be 5% of the market price per share. What is the cost of the preferred stock, including flotation?
Preferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue
has a par value of $100 and pays an annual dividend of $5.30 per share. Similar-risk preferred stocks are currently earning an
annual rate of return of 11.7%.
a. What is the market value of the outstanding preferred stock?
b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if
she sells the stock when the required return on similar-risk preferred stocks has risen to 12.9%?
a. The market value of the outstanding preferred stock is $
per share. (Round to the nearest cent.)
b. If the required return on similar-risk preferred stocks has risen to 12.9%, the value of the stock will be $
per share.
(Round to the nearest cent.)
If an investor purchased the preferred stock at the value calculated in part a and sells the stock when the required return on
similar-risk preferred stocks has risen to 12.9%,…
Chapter 10 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 10 - Prob. 1QCh. 10 - Assume that the risk-free rate increases, but the...Ch. 10 - How should the capital structure weights used to...Ch. 10 - Suppose a firm estimates its WACC to be 10%....Ch. 10 - The WACC is a weighted average of the costs of...Ch. 10 - AFTER-TAX COST OF DEBT The Holmes Companys...Ch. 10 - COST OF PREFERRED STOCK Torch Industries can issue...Ch. 10 - COST OF COMMON EQUITY Pearson Motors has a target...Ch. 10 - COST OF EQUITY WITH AND WITHOUT FLOTATION Jarett ...Ch. 10 - PROJECT SELECTION Midwest Water Works estimates...
Ch. 10 - COST OF COMMON EQUITY The future earnings,...Ch. 10 - COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION...Ch. 10 - COST OF COMMON EQUITY AND WACC Palencia Paints...Ch. 10 - WACC The Paulson Companys year-end balance sheet...Ch. 10 - WACC Olsen Outfitters Inc. believes that its...Ch. 10 - Prob. 11PCh. 10 - WACC Empire Electric Company (EEC) uses only debt...Ch. 10 - COST OF COMMON EQUITY WITH FLOTATION Banyan Co.s...Ch. 10 - Prob. 14PCh. 10 - WACC AND COST OF COMMON EQUITY Kahn Inc. has a...Ch. 10 - COST OF COMMON EQUITY The Bouchard Companys EPS...Ch. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - ADJUSTING COST OF CAPITAL FOR RISK Ziege Systems...Ch. 10 - WACC The following table gives Foust Companys...Ch. 10 - CALCULATING THE WACC Here is the condensed 2019...Ch. 10 - COST OF CAPITAL Coleman Technologies is...Ch. 10 - CALCULATING 3MS COST OF CAPITAL Use online...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Cost of Preferred Stock Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $4.50 a share. Ignoring flotation costs, what is the company’s cost of preferred stock, rps?arrow_forwardPreferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $60 and pays an annual dividend of $6.80 per share. Similar-risk preferred stocks are currently earning an annual rate of return of 7.7%. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 9.3%?arrow_forwardCost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8% annual dividend and a $100 par value and was sold at $99.50 per share. In addition, flotation costs of $1.50 per share must be paid. a. Calculate the cost of the preferred stock. b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost?arrow_forward
- XYZ Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $97.00; but flotation costs will be 5% of the market price per share. What is the cost of the preferred stock, including flotation?arrow_forwardCost of preferred stock torch industries can issue perpetual preferred stock at a price of 57.00 a share. The stock would pay a constant annual dividend of 6.00 a share. What is the company cost of preferred stock, rp?arrow_forwardPREFERRED STOCK: The firm has determined it can sell preferred stock at Php 75 per share par value. The stock will pay a Php 5.76 annual dividend. The cost of issuing and selling the stock (flotation costs) is Php 3 per share. What is the firm’s cost of preferred stock?arrow_forward
- Travis Industries plans to issue perpetualpreferred stock with an $11.00 dividend. The stock is currently selling for $108.50,but flotation costs will be 5% of the market price, so the net price will be $103.08 per share.What is the cost of the preferred stock, including flotation?arrow_forwardCost of preferred stock Determine the cost for the following preferred stock. Par Value: 75.00 Sale price: 79.50 Flotation cost: 4.50 Annual dividend: 9 The cost of preferred stock is? (how do you calculate preferred stock? I'm confused by how to do this.)arrow_forwardPerpetual preferred stock sells for $97.50 per share, and it pays an $6.85 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 7.32% b.6.25% c. 8.01% d.5.18% e. 4.11%arrow_forward
- A company's perpetual preferred stock currently sells for $90.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the issue price. What is the firm's cost of preferred stock? Group of answer choices 8.66% 8.93% 9.21% 9.12% 9.95%arrow_forwarde.g.1 Bright Lights company expects to issue preferred stock that pays $10.25 dividend per share. This share will sell for $96 in the market. It will cost 3% or $2.88 per share as issuing cost. What is the cost of the preferred stock?arrow_forwardPrediction Inc.'s perpetual preferred stock sells for $102.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 9.33% b. 8.72% c. 7.26% d. 7.17% e. 8.64%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY