2. The calculation of the cost of preferred stock Firms that carry preferred stock in their capital mix want to not only distribute dividends to common stockholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders, Ten years ago, Cold Duck Brewing Company issued a perpetual preferred stock issue-called PS Alpha--that pays a fixed dividend of $6.00 per share and currently sells for $100 per share. Cold Duck's management team is considering issuing a second issue of perpetual preferred stock. If the new issue-tentatively called PS Beta--is actually sold, the company will incur an underwriting (or flotation) cost of 4.80%. In addition, the underwriters are anticipating the need to pay a dividend of $17.75 per share to attract new investors, and is expecting to sell the new shares for $97.00 per share. As a component in Cold Duck's weighted average cost of capital, PS Alpha share currently exhibit a cost of: 5.70% 6.90% 6.00% 0 5.104 IT Cold Duck elects to issue its ps Beta share it will pay share from its underwriters per share in flotation costs, and will reculve not proceeds of Based on ts underwriters hest estimates of the besue's expected future dividend and market pricw, the marginal cost of the Ps Bata isson le expected to be 16.34% 25.95 19:22 If Cold Duck elects to issue its PS Beta shares, it will pay share from its underwriters. per share in flotation costs, and will receive net proceeds of V per Based on its underwriters' best estimates of the issue's expected future dividend and market price, the marginal cost of the PS Betalesne is expected to be: 16,34% 14.42 25.959 O 19.2296 When raising funds by issuing new preferred stock, the company will incur an underwriting, or flotation cost that the cost of preferred stock. Because the flotation cost is usually expressed as a percentage of price of each share the difference between the cost of preferred stock with and without flotation cost is enough to not onore 2. The calculation of the cost of preferred stock Firms that carry preferred stock in their capital mix want to not only distribute dividends to common stockholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders, Ten years ago, Cold Duck Brewing Company issued a perpetual preferred stock issue-called PS Alpha--that pays a fixed dividend of $6.00 per share and currently sells for $100 per share. Cold Duck's management team is considering issuing a second issue of perpetual preferred stock. If the new issue-tentatively called PS Beta--is actually sold, the company will incur an underwriting (or flotation) cost of 4.80%. In addition, the underwriters are anticipating the need to pay a dividend of $17.75 per share to attract new investors, and is expecting to sell the new shares for $97.00 per share. As a component in Cold Duck's weighted average cost of capital, PS Alpha share currently exhibit a cost of: 5.70% 6.90% 6.00% 0 5.104 IT Cold Duck elects to issue its ps Beta share it will pay share from its underwriters per share in flotation costs, and will reculve not proceeds of Based on ts underwriters hest estimates of the besue's expected future dividend and market pricw, the marginal cost of the Ps Bata isson le expected to be 16.34% 25.95 19:22 If Cold Duck elects to issue its PS Beta shares, it will pay share from its underwriters. per share in flotation costs, and will receive net proceeds of V per Based on its underwriters' best estimates of the issue's expected future dividend and market price, the marginal cost of the PS Betalesne is expected to be: 16,34% 14.42 25.959 O 19.2296 When raising funds by issuing new preferred stock, the company will incur an underwriting, or flotation cost that the cost of preferred stock. Because the flotation cost is usually expressed as a percentage of price of each share the difference between the cost of preferred stock with and without flotation cost is enough to not onore
