Ningbo Shipping Has Determined It Can Issue Preferred Stock at $115

question 149

Multiple Choice

Ningbo Shipping has determined it can issue preferred stock at $115 per share par value. The stock will pay a $12 annual dividend. The cost of issuing and selling the stock is $3 per share. The cost of the preferred stock is

• A) 6.4%.
• B) 9.4%.
• C) 10.7%.
• D) 14.7%.

---

Definitions:

Fixed Costs

Charges that are unaffected by production or sales volume, for example, monthly rent or payroll expenses.

Selling Price

The price at which a product or service is offered to customers.

Contribution Margin Ratio

The percentage of sales revenue that exceeds variable costs, indicating the portion of sales available to cover fixed costs and generate profit.

Fixed Costs

Expenses that do not fluctuate with changes in production level or sales volume, such as lease payments, salaries, and insurance.