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Tunney, Inc
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
Expert Solution
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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