Nature Food Inc. needs to estimate the cost of financing on preferred stock The

Question

Nature Food Inc. needs to estimate the cost of financing on preferred stock The firm has preferred stock outstanding that pays a constant dividend of $2.61 per year. That preferred stock is currently selling for $95.59. However, the underwriter woulcd charge flotation costs of $2.47 per share What is the form's cost of preferred stock financing? Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) Your Answer Answer units Page 4 of 6 Next Page Save Ail Responses Go to Submit Quiz

Explanation / Answer

CALCULATION OF THE EXPECTED PRICE OF THE SHARES Current Stock Price = $    95.59 Annual Preferred Dividend = $       2.61 Per shares Per year Floatation cost = $       2.47 Per shares Cost of the preferred stock fininancing= Annual Dividend / (Current Market Price - Floatation Cost) Cost of the preferred stock fininancing= Annual Dividend = $       2.61 Divide By "/"By Current Market Price = $    95.59 Less: Floation Cost $       2.47 Cost of the preferred stock fininancing= Annual Dividend = $       2.61 Divide By = $    93.12 Cost of the preferred stock fininancing=      0.0280 Cost of the preferred stock fininancing= 2.80% Answer = 2.80 %

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