please answer all parts to the question 3. The cost of preferred stock Preferred stock is a hybrid security, becau...

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3. The cost of preferred stock Preferred stock is a hybrid security, because it has some characteristics typical of debt and

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Answer 1

Answer #1

Answer a.

Characteristics:

Dividends are fixed: Debt

Debt has fixed interest rate.

No tax adjustments are made when calculating the cost of preferred stock: Equity

No tax adjustments are made at time of calculating the cost of equity.

Answer b.

Cost of preferred stock = Annual dividend / Current price
Cost of preferred stock = $13.00 / $139.84
Cost of preferred stock = 0.092963 or 9.2963%

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Answer 2

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