Answered

IDNLearn.com is your reliable source for expert answers and community insights. Find reliable solutions to your questions quickly and easily with help from our experienced experts.

LUVFINANCE, Inc. is estimating its WACC. The firm could sell, at par, $100 preferred stock that pays a 10 percent annual dividend and incurs 4.72% flotation costs. What is the cost of new preferred stock financing?

Sagot :

Answer:

The answer is "10.49%".

Explanation:

Preference inventory values are incurred as described below:

Using formula:

[tex]= \frac{Annual \ \ dividend}{ Price \times (1 - flotation\ cost) ]}[/tex]

[tex]= \frac{\$ 10}{[ \$ 100 \times (1 - 0.0472) ]}\\\\= \frac{\$ 10}{ \$ 100 \times (0.9528) }\\\\= \frac{\$ 10}{ \$ 95.28}\\\\=0.10495\\\\=10.49\%[/tex]

We appreciate your presence here. Keep sharing knowledge and helping others find the answers they need. This community is the perfect place to learn together. IDNLearn.com has the solutions you’re looking for. Thanks for visiting, and see you next time for more reliable information.