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 characteritics is consistent with debt and which is consistent with equity.
| Characteristics |
Debt |
Equity |
| Has a par, or face, value. |
Yes or No |
Yes or No |
| Failure to pay a preferred dividend does not send the firm into bankrupcy. |
Yes or No |
Yes or No |
At the present time, Ferro Co. does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Ferro has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual divident of $12 per share. If the investors pay $98.90 per shar, Ferro's cost of preferred stock will be ___________
a. 12.1%
b. 9.7%
c. 13.3%
d. 14.5%