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LUVFINANCE, Inc. is estimating its WACC. The firm could sell, at par, $100 preferred stock that pays a 10 percent annual dividend and incurs 6.22% flotation costs. What is the cost of new preferred stock financing?

Respuesta :

Answer:

the cost of new preferred stock financing is 10.66%

Explanation:

The computation of the cost of new preferred stock financing is given below:

= Annual dividend ÷ [ Price × (1 - flotation cost) ]

= $10 ÷ [ $100 × (1 - 0.0622) ]

= $10 ÷ $ 93.78

= 10.66%

Hence, the cost of new preferred stock financing is 10.66%

The same is to be considered and relevant

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