The cost of preferred stock is computed the same as the:
A)pre-tax cost of debt.
B)return on an annuity.
C)aftertax cost of debt.
D)return on a perpetuity.
E)cost of an irregular growth common stock.

Question

Quizplus · Accepted Answer

The cost of preferred stock is computed as the dividend payment divided by the market price of the preferred stock. This is similar to the calculation of the return on a perpetuity, where the annual payment is divided by the present value of the perpetuity. Therefore, the correct answer is the return on a perpetuity (choice D).

The Cost of Preferred Stock Is Computed the Same as The