The Cost of Preferred Stock Is Dependent Upon

question 231

Multiple Choice

The cost of preferred stock is dependent upon:

• A) The dividend amount and the market risk premium.
• B) The dividend amount and the growth rate of the firm.
• C) The dividend amount and the market price of the stock.
• D) The market risk premium and the firm's level of risk relative to the market.
• E) The market price of the stock and the risk level of the firm relative to the market.

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Definitions:

Accounting Rate

Typically refers to the rate of return or interest rate used in financial calculations, such as net present value or internal rate of return.

Straight-Line Method

A method of calculating depreciation of an asset, which involves evenly spreading the cost of the asset over its useful life.

Annual Average Investment

The average amount invested over a certain period, typically calculated for evaluating investment performance.

Profitability Index

The profitability index measures the relationship between the present value of future cash flows and the initial investment.