CityUniversityofNewYorkFIN3000--Costof.ppt

FIN3000, Liuren Wu The Cost of Preferred Equity The cost of preferred equity is the rate of return investors require of the firm when they purchase its preferred stock. The cost is not adjusted for taxes since dividends are paid to preferred stockholders out of after-tax income. The cost of preferred stock can be inferred from its trading price and the fixed dividend: FIN3000, Liuren Wu The Cost of Preferred Equity Example 14.2 Consider the preferred shares of Relay Company that are trading at $25 per share. What will be the cost of preferred equity if these stocks have a par value of $35