(cost of preferred stock) The preferred stock of Gator Industries sells for $34.
ID: 2613318 • Letter: #
Question
(cost of preferred stock) The preferred stock of Gator Industries sells for $34.35 and pays $2.74 per year in dividends.What is the cost of preferred stock financing? If Gator were to issue 486,000 more preferred shares just like the ones it currently has outstanding, it could sell them for $34.35 a share but would incur flotation costs of $3.04 per share. What are the flotation costs for issung the preferred shares and how should this cost be incorporated into the NPV of the project being financed?
a. The firm's cost of preferred financing is ? %.
b.The floation costs adjusted initial outlay for issusing the preferred share are ?$.
Explanation / Answer
Answer-a:
Calculation of cost of preferred stock financing:
= Dividend Payment / Price of the share
=2.74 / 34.35
= 0.0798
= 7.98%
Answer-b:
Total Floatation cost = Number of shares issued * floatation cost per share
=486000*$3.04
=$1,477,440
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.