Marme, Inc. has preferred stock selling for 97 percent of par that pays an annual coupon...

Question

Question

Marme, Inc. has preferred stock selling for 97 percent of par that pays an annual coupon of 14 percent.

What would be Marme’s component cost of preferred stock?

Answer 1

Answer #1

Let the face value of the preferred stock be $100

So, Current price = 97% of $100 = $97

Annual dividend = $100 x 14% = $14

So, component cost

= Annual dividend / Current price

= $14 / $97

= 0.1443 or 14.43%

Answer 2

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