Question

The dry well has 6.85 percent preferred stock outstanding with a market value per share of $79, a stated value of $100 per share, and a book value per share of $29. what is the cost of preferred stock?

O 8.50%
O 8.88%
O 8.67%
O 9.29%
O 9.00%

Answer 1

The cost of preferred stock for the Dry Well's 6.85 percent stock is calculated by dividing the annual dividend (6.85% of the $100 stated value) by the market price per share ($79), resulting in a cost of 8.67%. Therefore correct option is C

Step-by-step explanation:

The cost of preferred stock can be found by dividing the annual dividend payment by the market price per share. In this case, the Dry Well has 6.85 percent preferred stock. This percentage represents the annual dividend rate, meaning for every $100 of stated value, $6.85 is paid out as a dividend each year.

Given the market price per share of $79, the cost of preferred stock (also known as the dividend yield) can be calculated as follows:

Cost of Preferred Stock = Annual Dividend / Market Price Per Share

Cost of Preferred Stock = ($6.85 / $79) * 100

= 8.67%

Therefore, the correct answer is 8.67%%.