Question

Tunney Industries 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 Rp?

Answer 1

8%

Step-by-step explanation:

The computation of the cost of preferred stock is shown below:

Cost of preferred stock = Annual dividend ÷ Price of preferred stock per share

= $3.80 ÷ $47.50

= 8%

Simply we divide the annual dividend by the price of preferred stock per share so that the correct cost of preferred stock can be computed so we take all the items which are given in the question