The cost of new preferred stock is equal to: a. the preferred stock dividend div

Question

The cost of new preferred stock is equal to:
a. the preferred stock dividend divided by the marketprice. b. the preferred stock dividend divided by its parvalue. c. (1 - tax rate) times the preferred stock dividend dividedby net price. d. preferred stock dividend divided by the net selling priceof preferred. The cost of new preferred stock is equal to:
a. the preferred stock dividend divided by the marketprice. b. the preferred stock dividend divided by its parvalue. c. (1 - tax rate) times the preferred stock dividend dividedby net price. d. preferred stock dividend divided by the net selling priceof preferred.

Explanation / Answer

The cost of new preferred stock is: d. preferred stock dividend divided by the net selling price ofpreferred. This is because: a. Market price does not come into play when calculating newpreferred stock b. Par value is irrelevant for most stock price calculations c. Preferred stock does not provide a tax shield as debt does

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