Problem:
Jensen's Travel Agency has 11 percent preferred stock outstanding that is currently selling for $42 a share. The market rate of return is 14 percent and the firm's tax rate is 34 percent.
Required:
Question: What is Jensen's cost of preferred stock?
- 11.22 percent
- 7.26 percent
- 33.33 percent
- 26.19 percent
- 8.90 percent
Note: Provide support for your rationale.