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Cost Of Coogly's Preferred Stock

A financial calculation and discussion on the cost of Coogly�s preferred stock.

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    Cost Of Coogly's Preferred Stock, page 1ASSIGNMENTBY-

  2. Page 2

    Cost Of Coogly's Preferred Stock, page 2Cost ofCoogly's preferred stockRps=Dps/Pnetwhere:Dps = preferred dividendsPnet = net issuing priceComponent Cost of preferred stock= $4/ $ (82-6)= 0.0526or 5.26%

  3. Page 3

    Cost Of Coogly's Preferred Stock, page 3Advantagesand disadvantages of usingpreferred stockAdvantages:Itis technically an equity vehicle rather than a debt security like a bond. That prevents thecompany from holding too much secured debt with its accompanying risks, and it lowersthe company's debt-to-equity ratio--improving a measurement scrutinized by investorsandregulators.Dividends canbe suspended in the event of financialhardship.They carry no voting rights, hence less dilution of control.Disadvantages:Companies must pay dividends or interest payments to preferred stockholders beforecommon stockholders. Typically, these dividends are cumulative. If companies have notpaid the full amount of dividends owed to preferred shareholders, then commonshareholders must forgo any dividends.Because preferred shareholders have a higherclaim to a corporation's assets, in liquidation they receive payment after secured andunsecured creditors but before common shareholders. Unless a company has chosen toexit the business for non-financial reasons, typically few, if any, assets will remain to paycommon shareholders. Therefore, owners as common shareholders may receive minimalvalue for their efforts in the event of business failure.

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