Preferred Stock Is Paying an Annual Dividend of $9

question 141

Multiple Choice

Preferred stock is paying an annual dividend of $9.50 and is currently trading at $79.16. Assume floatation costs of 12%. What is the cost of preferred stock?

• A)8.33%
• B)9.47%
• C)10.56%
• D)12.00%
• E)13.64%

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Definitions:

GAAP

Generally Accepted Accounting Principles (GAAP) are a framework of accounting standards, procedures, and rules used by accountants to prepare financial statements in the United States.

Long-lived Assets

Assets that provide economic benefit for more than one accounting period, typically including property, plant, and equipment.

Demolition

The process of tearing down or destroying a building or structure, usually in order to make way for new construction.

Capitalization

The accounting practice of recording a cost/expense as an asset on the balance sheet rather than expensing it immediately.