A Firm Has $1 Million Market Value and It Sells

question 76

Multiple Choice

A firm has $1 million market value and it sells preferred stock with a par value of $100. If the coupon rate on the preferred stock is 5% and the preferred stock trades at $91, what is the cost of preferred stock capital?

• A) 4.67%
• B) 4.95%
• C) 5.22%
• D) 5.49%

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Definitions:

Production Technologies

The methods, equipment, and processes used to manufacture goods or provide services.

Close Substitutes

Products or services that can easily replace one another in the eyes of consumers, leading to competitive market dynamics.

Positive Profits

Positive profits occur when a business's total revenues exceed its total costs, indicating financial gain from its operations.

Long Run

Refers to a period where all factors of production and costs can be variable, allowing firms to adjust to changes in the business environment fully.