A Firm Has $3 Million Market Value and It Sells

question 23

Multiple Choice

A firm has $3 million market value and it sells preferred stock with a par value of $100.If the coupon rate on the preferred stock is 9% and the preferred stock trades at $95,what is the cost of preferred stock financing?

• A)8.75%
• B)9.47%
• C)10.21%
• D)10.41%
• E)10.44%

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Definitions:

Utilitarian

A normative ethical theory that posits the best action is the one that maximizes utility, generally defined as maximizing happiness and reducing suffering.

Diminishing

A concept referring to the point at which the level of profits or benefits gained is less than the amount of money or energy invested.

Leaky Bucket

A metaphor for the inefficiency in income redistribution, where some resources are wasted or lost during the transfer process from the affluent to the needy.

Government Redistribution

The transfer of income, wealth, or property rights from some individuals to others through mechanisms such as taxation, welfare programs, and subsidies, conducted by the state or governing bodies.