You want to estimate Cardinal Co.’s cost of preferred capital. Assume that the preferred shares were issued at $20/share. Today, the price is $22/share. The preferred shares pay an annual dividend of $2. What is the cost of preferred capital?

10%

Explanation:

Cost of preferred capital=dividend per share/Par value of preferred capital

                                        =$2/$20=10%

We take issue price of preferred stock for the sake of working cost of capital.

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-lavira : )