8% is the amount of the dividend based on the par value of the stock ($100). The annual dividend paid per share should be divided by the net amount received from the sale of each share (the gross amount minus the issue costs).
Cox Company will receive a net amount of $87 per share issued ($92 ? $5). The dividend due on the preferred stock will be 8% of the par value of $100 per share, which is $8 (100 × .08). The cost of the preferred stock is the $8 dividend per share divided by the $87 net proceeds per share, which is .09195 or 9.20%.
This answer results from dividing the amount of the annual dividend to be paid per share by the gross amount received from the sale of each share ($92) plus the issue costs. The annual dividend per share should be divided by the net amount received from the sale of each share (the gross amount minus the issue costs).
This answer results from dividing the amount of the annual dividend to be paid per share by the gross amount received from the sale of each share ($92). The annual dividend per share should be divided by the net amount received from the sale of each share (the gross amount minus the issue costs).
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