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

question 33

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%.
• E)none of the above.

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value.

Payback Period

The time it takes for an investment to generate an amount of income or cash flows to recover the initial capital outlay.

Incremental Cost Approach

A method used to analyze the financial impact of additional costs incurred when making business decisions.

Discount Rate

In discounted cash flow (DCF) analysis, this rate is applied to calculate the present value of anticipated cash flows.