4. The cost of preferred stock Firms that carry preferred stock in their capital mix want to not only distribute dividends to the company's 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. Consider the case of Peaceful Book Binding Company The CFO of Peaceful Book Binding Company has decided that the company needs to raise additional capital. It can sell preferred stock paying an annual $5 dividend per share for $100 per share; however, it will incur a flotation cost of 1.3% per share. After it pays the underwriter, Peaceful Book Binding Company will receive from each share of preferred stock that it issues. Based on this information, Peaceful Book Binding Company's cost of preferred stock is the cost of When raising funds by issuing new preferred stock, the company will incur an underwriting, or flotation, cost that 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 ignore. After it pays the underwriter, Peaceful Book Binding Company will receive Based on this information, Peaceful Book Binding Company's cost of prefe $1.30 $88.83 from each share of preferred stock that it issues. is When raising funds by issuing new preferred stock, the company will incu preferred stock. Because the flotation cost is usually expressed as a perce enough to not stock with and without flotation cost is writing, or flotation, cost that the cost of $1.11 $98.70 rice of each share, the difference between the cost of preferred Grade It Now Save & Continue The CFO of Peaceful Book Binding Company has decided that the paying an annual $5 dividend per share for $100 per share; however, it will incur a 4.06% cost of 1.3% per share. After it pays the underwriter, Peaceful Book Binding Company will receive 5.07% 4.56% h share of preferred stock that it isse 5.58% Based on this information, Peaceful Book Binding Company's cost of preferred stock is or flotation, cost that After it pays the underwriter, Peaceful Book Binding Company will receive from each share of preferred stock that it issues. decreases Based on this information, Peaceful Book Binding Company's cost of preferred stock is increases the cost of When raising funds by issuing new preferred stock, the company will incur an underwriting, or flotation, cost that 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 ignore. Based on this information, Peaceful Book Binding Company's cost of preferred stock is When raising funds by issuing new pref preferred stock. Because the flotation d stock with and without flotation cost is insignificant significant the cost of company will incur an underwriting, or flotation, cost that xpressed as a percentage of price of each share, the difference between the cost of preferred enough to not ignore.