A firm issued $15 million in preferred stock at a price of $3.25 per share. The preferred shares carry a 13% dividend, or $0.43 annually. After paying fees and costs, the firm realizes $2.89 per share issued. What is the cost of capital for this issuance of preferred stock?

14.8%

Explanation:

Cost of capital for preferred stock can be calculated by a simple formula

Formula: Cost of preferred capital = dividend/(Current price - floatation cost)

As you can see in the question data current price - floatation cost and dividend is already given as $2.89 and $0.43 respectively. We just need to put values in formula.

Cost of preferred capital = $0.43/$2.89 x 100

Cost of preferred capital = 14.8%

the investment was $14,174.196

explanation:

a lump sum means that the father of the example made one deposit and leave it be.

we need to know the value of a capital that generated at 4.05% per year during 28 years the sum of $48,613.24

now clearing the formula to solve for capital we got:

and we reach the answer investment = $14,174.20