Acompany’s perpetual preferred stock currently sells for $102.50 per share, and it pays 8% annual dividend with a $100 par. if the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. what is the firm's cost of preferred stock? a. 8.22%
b. 9.28%
c. 6.90%
d. 9.53%
e. 7.97%.

The correct answer is "a. 8,22%".

Explanation:

Preferred stock price is $102.50

Preferred dividend is $8.00

Flotation cost 5.00%

We have to calculate the firm cost of preferred stock with the formula

rp= Dp/(Pp(1 −F))

So = rp = 8 / [102,50 × ( 1 - 0,05)] = 8,22%

D. $25,000

Explanation:

The equity is the difference between assets and liabilities

Opening equity=$150,000-$70,000

opening equity=$80,000

Ending equity=$180,000-$80,000

ending equity=$100,000

The ending equity formula below can be used to derive the net income for 2016:

ending equity=beginning equity+ net income-dividends

The net income increases the amount of ending equity while dividends decrease it.

net income=unknown

dividends=$5000

$100,000=$80,000+net income-$5000

net income=$100,000-$80,000+$5,000

net income=$25,000