Question

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Schuss Inc can sell preferred shares for $96 with in estimated flotation cost of $6.00. The...


Schuss Inc can sell preferred shares for $96 with in estimated flotation cost of $6.00. The prefferd stock is anticipated to pay $5 per share in divideds.

Compute the cost of preferred stock for Schuss Inc.

Solutions

Expert Solution

Cost of preferred stock = Dividend / ( Price of Preferred stock - Floatation cost)

= 5 / (96-6)

= 5/90

= 0.05555555555

In percentage, 0.05555555555 * 100

Cost of preferred stock = 5.555%


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