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%.

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Definitions:

Cost of Equity

The return a firm theoretically pays to its equity investors to compensate them for the risk they undertake by investing in the company.

Total Debt

The sum of all short-term and long-term liabilities owed by an entity.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set.

Cost of Capital

The rate of return that a company must earn on its projects to maintain its market value and attract investment.