Question on cost of equity financing

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Nature Food Inc. needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $3.98 per year. That preferred stock is currently selling for $94.69. However, the underwriter would charge flotation costs of $2.62 per share. What is the form’s cost of preferred stock financing?

Round the answers to two decimal places in percentage form.

Oct 4th, 2015

Thank you for the opportunity to help you with your question!

Cost of Preferred Stock = Dividend on Preferred/Price of Preferred/1-Flotation Costs
or            
Cost of Preferred Stock = Dividend on Preferred/Price of Preferred-Flotation Costs
           
Dividend  $  3.98          
Price  $  94.69          
Flotation Cost  $  2.62          
           
CPS  4.32%          

Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 4th, 2015

Thank you!!

Oct 4th, 2015

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