A company has 200,000 shares of 8% preferred stock with $10 par in its capital structure. The preferred stock currently sells for $15. The company has a tax rate of 40%. Ignore flotation costs. The cost of preferred stock used in WACC will be:

the cost of preferred stock is 5.33%

Explanation:

The computation of the cost of preferred stock is shown below:

The cost of preferred stock is

= (Par value × dividend rate) ÷ (Share price)

= ($10 × 8%) ÷ ($15)

= ($0.8) ÷ ($15)

= 5.33%

Hence, the cost of preferred stock is 5.33%

The same is to be considered

We simply applied the above formula so that the correct cost could come

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.

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