A firm has
outstanding preferred stock that has face value of $100 per share and pays a
fixed annual dividend of $6.80. Today, the preferred stock's current market price is $97.00. What is the company's
cost of preferred stock?
The
cost of preferred stock is the
dividend yield on the preferred stock. Notice that there is no subscript for the dividend. This is because this preferred stock pays a
constant annual dividend.Rp = D / Po
= $6.80 / $97.00
= 0.0701, or 7.01%
Similar to bonds, preferred stocks are rated in a similar manner. There are published ratings available for subscription on the internet. An alternative way of finding the cost of preferred stock is to observe the required returns on other, similarly
rated preferred stock.
Additional Accounting Examples and Explanations:
Popular Accounting Problems
-
The December 31, 2006 Balance Sheet of Business Card's Company shows Assets on the balance sheet of $35,000 and Liabilities of $23,0...
-
The following are examples of fixed costs and variable costs : Indirect labor- fixed costs could be variable under certain circumstances Ind...
-
What are the main differences between a discretionary fixed cost and a committed fixed cost? Definition of discretionary fixed cost and co...
-
A toilet manufacturer is considering building a new production plant in a new town. It will require an initial capital investment of $12 mil...
-
Manufacturing costs are typically classified as either (1) direct materials, (2) direct labor, or (3) manufacturing overhead. Fixed manufa...
-
Examples of Current Liabilities Current liabilities are only liabilities that will be paid within one year Short-term borrowings Cur...
-
Use this equation to calculate the Direct Material (DM) Purchase Budget for a manufacturing company: Amount of raw material required for p...
-
A bank reconciliation is created by accountants periodically to display the differences between cash reported on a companies bank statement...
-
Preferred Stock Example Problem: A yacht manufacturing company has issued perpetual preferred stock outstanding with a par value of $100 ...
-
A company has a bond that has a $ 1000 (face value of bond) and a contract or coupon intrest of 11.5%. The company's bond has a curren...
No comments:
Post a Comment