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D. Prepare
Answer: C

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Which of the following equations correctly illustrates the calculation of the cost of perpetual preferred equity?
A. None of these examples
B. Annual dividend/(offering price - flotation costs)
C. Net offering price/(required rate of return) + expected growth
D. Offering price/(expected rate of return- required rate of return) + expected growth
E. (Annual dividend/current preferred stock price) + expected growth rate
F. Annual dividend/(offering price + flotation costs)
Answer: B
Explanation:
Explanation/Reference:
Explanation:
The cost of perpetual preferred equity can be found by dividing the annual dividend by the net offering price, or gross offering price less flotation costs. Of the six answers listed, only #2 represents a recognized financial equation; the rest are largely fictitious.

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