A firm has issued $5 par value preferred stock that pays a $0.80 annual dividend. The...
A firm has issued $5 par value preferred stock that pays a $0.80 annual dividend. The stock currently sells for $9.50. In calculating WACC, what should one use for the value of the firm's preferred stock?
Please do not use excel, show all work if possible!
Homework Answers
Par value = $5
Annual dividend = $0.80
Price = $9.50
Cost of preferred stock = Annual dividend / Price
Cost of preferred stock = $0.80 / $9.50 = 0.10526
Cost of preferred stock = 10.526%
Value of firm preferred stock used in computation of WACC = Market price of preferred stock = $9.50
So, Value of the firm's preferred stock = $9.50
So, Answer is $9.50
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