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:

Normal Balance

The side (debit or credit) of an account that is normally expected to have a higher balance, indicating its increase.

Financial Statement

A document detailing quantitatively the financial state of a business, covering its balance sheet, income statement, and cash flow statement.

Permanent/Temporary

Categories of accounts in accounting: permanent accounts track long-term financial status, while temporary accounts track revenues, expenses, and dividends over a specific period.

Withdrawals

Money or assets taken out of a business by its owners for personal use.