Preffered stock is a hybrid security

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Reference no: EM13938292

Preffered 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.

Dividends are fixed: CONSISTENT WITH DEBT OR EQUITY?

Failure to pay a preferred dividend does not send the firm into bankruptcy: CONSISTENT WITH DEBT OR EQUITY?

At the present time, gailbraith Co. does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Galbraith 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, Galbraith's cost of preferred stock will be:

A. 12.1%

B. 10.9%

C. 13.3%

D. 10.3%

Reference no: EM13938292

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