Question

Tangshan Mining is considering issuing preferred stock. The preferred stock would have a par value of​ $75 and a 5.50 percent dividend. What is the cost of preferred stock for Tangshan if flotation costs would amount to 5.5 percent of par​ value?

Answer 1

5.82%

Step-by-step explanation:

Cost of preferred stock=Annual dividends / (Current price( 1-floatation cost))

= (5.5%*75)/(75(1-0.055)

= 4.125/70.875

= 0.058201

= 5.82%