Preferred stock is a hybrid security, because it has some characteristics typica
ID: 2767956 • Letter: P
Question
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 characteristics is consistent with debt and which is consistent with equity. At the present time, Turnbull Co. does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Turnbull has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $14 per share. If the investors pay $100.15 per share, Turnbull's cost of preferred stock will beExplanation / Answer
Answer to First Part :
--- Dividend to debt are fixed and and to equity are variable.
--- Usually no specific date of maturity for equity but generally debt securities would be having specific due date.
Answer to Second Part :
Cost of Preferred stock of Turnbull Co.
Cost = Dividend / Net Consideration recvd
= 14 / 100.15
= 13.98 %