SDF Company wants to raise $20,000,000 through issuing preferred stock. The cost of preferred stock is estimated to be 15 percent. If the company wants to issue 1,000,000 shares of the preferred stock, how much should be the promised dividend per stock?
To calculate the promised dividend per stock, we need to multiply the number of shares of preferred stock by the cost of preferred stock (expressed as a percentage).
Step 1: Convert the percentage to a decimal by dividing it by 100.
15% ÷ 100 = 0.15
Step 2: Multiply the cost of preferred stock (in decimal form) by the desired amount to be raised.
0.15 * $20,000,000 = $3,000,000
Step 3: Divide the total cost of preferred stock by the number of shares to find the promised dividend per stock.
$3,000,000 ÷ 1,000,000 = $3
Therefore, the promised dividend per stock should be $3.