A Firm Has $1 Million Market Value and It Sells

question 48

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 7% and the preferred stock trades at $95,what is the cost of preferred stock financing?

• A)6.75%
• B)7.15%
• C)7.21%
• D)7.37%
• E)8.12%

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Definitions:

Investment Projects

Initiatives undertaken by individuals, companies, or governments to allocate capital in order to generate returns or achieve strategic goals.

Interest Rate

The cost incurred by a borrower for the privilege of using funds, defined as a percentage of the principal value.

Indifferent

A state of having no preference between two or more outcomes; neutrality in preference.

Interest Rate

The percentage at which interest is paid by borrowers for the use of money that they borrow from a lender.