Answered

Welcome to Westonci.ca, the ultimate question and answer platform. Get expert answers to your questions quickly and accurately. Explore a wealth of knowledge from professionals across various disciplines on our comprehensive Q&A platform. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

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]

Thanks for stopping by. We strive to provide the best answers for all your questions. See you again soon. Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. Discover more at Westonci.ca. Return for the latest expert answers and updates on various topics.