Cullumber Hand Trucks has a preferred share issue outstanding that pays a dividend of $1.30 per...

Cullumber Hand Trucks has a preferred share issue outstanding that pays a dividend of $1.30 per year. The current cost of preferred equity for Cullumber is 7.40 percent. Cullumber issues additional preferred shares that pay exactly the same dividend and the investment banker retains 5.10 percent of the sale price.

What is the current price of preferred shares? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Current price of preferred shares

What is the cost of the new preferred shares for Cullumber? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Cost of new preferred shares for Cullumber

Solutions

Expert Solution

Assuming the current share price and the cost of new issue are required:

Details
Current Preferred dividend =D	1.30
Current Cost of preference share=k	7.40%

Current Preference share price=D/k=	17.56
So current price of Preference share=$17.56

Assume the new Pref share issue has the same price
retention by Investment banker @5.1%=		per share
Net Proceeds receivable per share=17.56-17.56*5.1%	16.66	per share
Dividend per share	1.30
Cost of new preference share =1.3/16.66=	7.80%

So cost of new preference share issue=7.8%

ekkarill92 answered 1 year ago

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