XYZ is trying to estimated its cost of capital and needs to know the cost of preferred stock. XYZ can issue new preferred stock with a $100 par value and a 5% dividend. New preferred stock would have a price of $99. What is the cost of preferred stock for XYZ?

XYZ is trying to estimated its cost of capital and needs to know the cost of preferred stock. XYZ can issue new preferred stock with a $100 par value and a 5% dividend. New preferred stock would have a price of $99. What is the cost of preferred stock for XYZ?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 21MC

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Question

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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