Question

In: Finance

IVY has preferred stock selling for 97.6 percent of par that pays a 7.4 percent annual...

IVY has preferred stock selling for 97.6 percent of par that pays a 7.4 percent annual coupon. What would be IVY's component cost of preferred stock?

7.58%

7.22%

17.76%

7.40%

Solutions

Expert Solution

Annual coupon = (1000* 7.4%) = $74

Current price = (1000* 97.6%) = $976

Hence component cost of preferred stock = Annual coupon/ Current price

                                                                   = (74/ 976)

                                                                     = 0.0758 or 7.58%

So correct answer is A

--------------------------------------------------------------------------------------------------------------------------

Feel free to comment if you need further assistance J

Pls rate this answer if you found it useful.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Rose has preferred stock selling for 97.8 percent of par that pays a 10.2 percent annual...
Rose has preferred stock selling for 97.8 percent of par that pays a 10.2 percent annual coupon. What would be Rose's component cost of preferred stock? 10.20% 10.43% 9.98% 5.22%
A preferred stock with a $25 par value pays an annual dividend of 8% and is...
A preferred stock with a $25 par value pays an annual dividend of 8% and is currently trading for $18 per share. What is the annualized return being demanded by investors? AT&T stock (T) just paid an annual dividend of $1.75 for the most recent year. The current stock price is $38. Assuming investors expect a constant growth rate in dividends of 6% into perpetuity, what is the implied required return being demanded by investors?
11. APR Company's preferred stock is currently selling for $24.00, and pays a perpetual annual dividend...
11. APR Company's preferred stock is currently selling for $24.00, and pays a perpetual annual dividend of $2.80 per share. New issue of preferred stock would have $4 per share in flotation costs. The firm's tax rate is 40%. Compute the cost of new preferred stock. 12. ABC Corp. is undergoing a major expansion. The expansion will be financed by issuing new 12-year, $1,000 par, 9.5% annual coupon bonds. The market price of the bondsis $1,125 each. Flotation expense on...
Avondale Aeronautics has perpetual preferred stock outstandingwith a par value of $100. The stock pays...
Avondale Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2.00 and its current price is $120.What is its nominal annual rate of return? Do not round intermediate calculations. Round your answer to two decimal places.  %What is its effective annual rate of return? Do not round intermediate calculations. Round your answer to two decimal places.  %
A) Alpha Inc. perpetual preferred stock is selling for $100 pershare and has a par...
A) Alpha Inc. perpetual preferred stock is selling for $100 per share and has a par value of $150. It pays a constant dividend of 8.0%. The firm’s marginal tax rate is 40%. What is the cost of preferred stock?A. 5.33%B. 7.20%C. 12.00%B) Alpha Inc. common stock is selling for $50 per share. The beta of the stock is 1.75 and the risk-free rate is 3.0%. The expected return on the market is 7.0%. The firm’s marginal tax rate is...
A share of preferred stock is selling today for $20.00. The share has a par value...
A share of preferred stock is selling today for $20.00. The share has a par value of $100 and an APR coupon rate of 4.75%. Based on this information, what is the required return to hold a share of preferred stock? Question 4 options: 28.75% 23.75% 26.25% 21.25%
Hankins Corporation has 9.4 million shares of common stock outstanding, 690,000 shares of 7.4 percent preferred...
Hankins Corporation has 9.4 million shares of common stock outstanding, 690,000 shares of 7.4 percent preferred stock outstanding, and 194,000 of 8.6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $65.90 per share and has a beta of 1.39, the preferred stock has a par value of $100 and currently sells for $106.10 per share, and the bonds have 13 years to maturity and sell for 86.5 percent of par. The market risk premium...
Hankins Corporation has 8.4 million shares of common stock outstanding, 590,000 shares of 7.4 percent preferred...
Hankins Corporation has 8.4 million shares of common stock outstanding, 590,000 shares of 7.4 percent preferred stock outstanding, and 184,000 of 8.6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $64.90 per share and has a beta of 1.29, the preferred stock currently sells for $107.10 per share, and the bonds have 13 years to maturity and sell for 91.5 percent of par. The market risk premium is 7 percent, T-bills are yielding 5.7...
Hankins Corporation has 8.4 million shares of common stock outstanding, 590,000 shares of 7.4 percent preferred...
Hankins Corporation has 8.4 million shares of common stock outstanding, 590,000 shares of 7.4 percent preferred stock outstanding, and 184,000 of 8.6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $64.90 per share and has a beta of 1.29, the preferred stock currently sells for $107.10 per share, and the bonds have 13 years to maturity and sell for 91.5 percent of par. The market risk premium is 7 percent, T-bills are yielding 5.7...
Joe has common stock and preferred stock outstanding. The preferred stock has a par value of...
Joe has common stock and preferred stock outstanding. The preferred stock has a par value of $100, a dividend rate of 4.5%, and is cumulative. During the past 3 years, Joe declared and paid dividends provided at left. Compute the amount of dividends paid to preferred and common shareholders each year. Preferred stock: Par value $100 Dividend rate 4.5% Shares outstanding 100,000 Dividends declared and paid: Year 1 400,000 Year 2 100,000 Year 3 1,250,000
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT