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Tunney, Inc

Finance

Tunney, Inc. can issue perpetual preferred stock at a price of $47.50 a share. The stock would

pay a constant annual dividend of $3.80 a share. What is the company's cost of preferred

stock?

A.

8.0%

B.

12.5%

C.

18.05%

D.

19.10%

E.

none of

the above

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Computation of Company's Cost of Preferred Stock:

Cost of Preferred Stock = Annual Dividend/Current Stock Price

= $3.80/$47.50

Cost of Preferred Stock = 8%

So, the correct option is A "8.00%".

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