Torch Industries can issue perpetual preferred stock at a price of $59.00 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, rp?

The company's cost of preferred stock is 11.86%

Explanation:

The cost of preferred stock implies the interest payable to preferred stockholders on yearly basis, which is calculated using the formula below:

price of the preferred stock=annual dividend/cost of preferred stock

price of preferred stock is $59

annual dividend is $7

by changing the subject of the formula

cost of preferred stock=annual dividend/price of preferred stock]

cost of preferred stock=$7/$59

=11.86%