Bosio inc. s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. if the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. what is the companys cost of preferred stock for use in calculating the wacc?
a. 8.72%
b. 9.08%
c. 9.44%
d. 9.82%
e. 10.22%

b. 9.08%

Explanation:

Cost of preferred stock is the required rate of return by investors for providing capital to a company.

Formula for cost of preferred stock = Dividend / Price*(1-Flotation cost)

Dividend = $8.50

Price = $97.50

Flotation cost = 4% or 0.04 as a decimal

Next, plug in the numbers to the formula;

Cost of preferred stock = 8.50/ [97.50 (1-0.04)]

= 8.50 / 93.6

= 0.0908 or 9.08% as a percentage

month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23

answerconversion factor;