A company has preferred stock that can be sold for $15 per share. The preferred

Question

A company has preferred stock that can be sold for $15 per share. The preferred stock pays an annual dividend of 3% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1 per share. The company's marginal tax rate is 40%. Therefore, the cost of preferred stock is: 20.0% 12.0% 21.4% 12.84% Li Holding Company paid a dividend yesterday of $3 per share (Do = $3). The dividend is expected to grow at a constant rate of 5% per year. The price of Li's stock today is $22 per share. If Li decides to issue new common stock, flotation costs will equal $2 per share. Li's marginal tax rate is 40%. Based on the above information, the cost of retained earnings is: 5.14% 11.59% 20.75% 19.32%

Explanation / Answer

20.0

20.75

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