CFA Practice Question

CFA Practice Question

BGZ Corp. wishes to raise capital by selling preferred stock. It can sell preferred stock of face value $10 for $12. Investment banking fees are 3%. The preferred stock pays $1.44 dividends every year. The cost of preferred stock to BGZ is:
A. 12.00%
B. 12.37%
C. 14.85%
Explanation: Cost of preferred = $1.44 / $12 * (1 - 0.03) = 12.37%

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