Ch 10: Assignment - The Cost of Capital Back to Assignment Attempts: Keep the Highest: 12 3. The cost of preferred stock Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Debt Equity Usually no voting rights. No tax adjustments are made when calculating the cost of preferred stock. 00 O Consider the case of Bogdan Enterprises: At the present time, Bogdan Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure In the future. Bogdan has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $12 per share. If the investors pay $98.90 per share for their investment, then Bogdan's cost of preferred stock (rounded to four decimal places) will be Grade It Now Save & Continue Continue without saving