Strategic Financing for Discussion Essay Example for Free

Strategic Financing for Discussion EssayPreferred stock is defined as a type equity that has priority over everyday stock in terms of dividend payment and asset distribution in the event of liquidation. Basically it is a hybrid security that actually sh bes features with both debt and harsh stock. Further, it has the following features, convertibility to common land stock, nonvoting right, and callability at the corporations option. However, its usage does not actually increase the probability of the firms bankruptcy. It pays dividend just like common stock out of the firms after-tax income (Brigham Houston, 2009). In case the pet stock does not have a stated date of maturity, its cost is resolute using the following formula (Brigham Ehrhardt, 2013).Cost of the Preferred Stock = the dividend on Preferred stock/ (Price of Preferred stock/1-Flotation Costs)Whereby the price of preferred stock is basically the current market value while the floatation costs are the preferred stocks underwriting costs which are usually given as a percentage. Firms that use preferred stock should include its cost in their weighted average cost of capital (WACC) formula (Brigham Ehrhardt, 2013).Three publicly-traded companies that have preferred stock in their capital structure includeAmerican Capital Agency Corp. (NASDAQ AGNC)This is mortgage REIT that basically invests in agency securities that their interest and principal payments are usually guaranteed by US Government-sponsored entity (Federal National Mortgage Association) and the US Government agency (Government National Mortgage Association)Wells Fargo and Company This is an American multinational high society that deals in banking and financial servicers hence providing mortgage, banking, credit card, insurance, investing, and commercial and consumer financial service.Bank of America Corporation This is an American multinational corporation that deals in banking and financial services and is has its headq uarter in Charlotte, North Carolina.ReferencesBrigham, E. F., Houston, J. F. (2009). Fundamentals of financial management. Mason, OH South-Western Cengage Learning.Brigham, E. F., Ehrhardt, M. C. (2013). Financial management Theory and practice. Mason, Ohio South-Western.Source document