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Bauer Company’s preferred stock is currently selling at $80 per share and pays an annual dividend of $8 per share. The company will incur 5% flotation cost if they issue new preferred stock. What is Bauer’s cost of preferred stock (with adjustment of flotation costs). (A) 11.05%(B) 10.23%(C) 10.53%(D) 11.81%(E) 10.74%

Respuesta :

TomShelby

Answer:

(C) 10.53%

Explanation:

The flotation cost makes the cost of the preferred stock at more flotation because a portion of the proceeds from the share is taken away to pay up the flotation cost.

[tex]r_p = \frac{D}{P(1-f)}[/tex]

[tex]r_p = \frac{8}{80(1-0.05)}[/tex]

[tex]r_p = \frac{8}{80(0.95)}[/tex]

[tex]r_p = \frac{8}{76}[/tex]

[tex]r_p = 0,105263[/tex]

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