CTL Corporation has 30% of its financing in preferred shares

Finance Aug 12, 2020

CTL Corporation has 30% of its financing in preferred shares. The shares are currently trading at a market price of $55. The book value of the shares is $60, and they pay a dividend of $4.05. CTL's corporate tax rate is 35%. What is the cost of preferred stock to the company?

Question 9 options:

7.36%

4.79%

4.39%

6.75%

Expert Solution

Computation of the cost of preferred stock:-

Cost of preferred stock = Annual dividend / Current market price

= $4.05 / $55

= 7.36%

Correct option is 1). 7.36%

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