[Verse 1] The boardroom needs some capital today But common stock dilutes the voting sway There's another route that companies explore Preferred stock financing through the door These shareholders get dividends that are fixed A steady stream that never gets mixed With company profits up or down the scale Their payments stay constant without fail [Chorus] Dividend rate divided by the price That's the cost of preferred stock so nice D sub P over P zero clean Simplest formula you've ever seen No tax shield like debt provides for free Straight percentage is the key Cost of preferred stock, now you know How to make those calculations flow [Verse 2] Unlike bonds there's no maturity date These dividends go on at steady rate The holders stand between the debt and equity A middle ground with some security When companies fail they get paid first Before common shares but after debt dispersed This ranking system sets the risk apart And determines the required return from start [Chorus] Dividend rate divided by the price That's the cost of preferred stock so nice D sub P over P zero clean Simplest formula you've ever seen No tax shield like debt provides for free Straight percentage is the key Cost of preferred stock, now you know How to make those calculations flow [Bridge] Flotation costs might modify the base Reduce the proceeds in the denominator's place Market price of ninety but net eighty-five received Adjust your calculation or be deceived The cost will climb when issuing expenses bite Making financing slightly less than right [Verse 3] In WACC calculations this piece fits Between the debt and equity commits Weight it by the market value share Of total capital structure sitting there Investment bankers price these securities Based on credit ratings and market histories The final cost reflects the risk profile Of this hybrid instrument's financial style [Chorus] Dividend rate divided by the price That's the cost of preferred stock so nice D sub P over P zero clean Simplest formula you've ever seen No tax shield like debt provides for free Straight percentage is the key Cost of preferred stock, now you know How to make those calculations flow [Outro] Fixed dividends and market pricing power Calculate the cost this very hour Preferred stock financing takes its place In capital structure's measured space
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