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Eile Edit View History Bookmarks Iools Help CengageBrain My Home O Aplia: Student Question C Chegg Study IGuided Solu x ii courses aplia.com/af/servlet/quiz?cto syildiz-0005&quiz; action takeQuiz&quiz; probGuid QNAPcoA801010000002e8c44a0070000&ck; 1 1460846903922 0AAA0559014F7497449EC4F30000 Search Graded Assignment l Read Chapter 10 l Back to Assignment Due Sunday 04.17.16 at 11:30 PM Average: 13 Attempts: 4. Cost of preferred stock Aa Aa E Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity Characteristics Debt Equity Dividends are fixed No tax adjustments are made when calculating the cost of preferred stock. O At the present time, Ferro Co. does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Ferro has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $13 per share. If the investors pay $95.70 per share, Ferro's cost of preferred stock will be 15.6% 15.0% 11.6% 13.6% Flash Player WIN 21,0,0,21 2004-2016 Aplia. All rights reserved Q3 3.34 Grade It Now Save & Continue 2013 Cengage Learning except as noted. All rights reserved CO O E Suggestions Session 59:24 Timeout 5:50 P

Explanation / Answer

No tax adjustments are made when calculating cost of Preferred stock = Equity

                                                = 13/95.70

                                              = 0.1358

                                                = 13.60

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