8.82% 12.32% 10.17% 11.62% $5.47 $6.82 $8.27 $8.97 A firm\'s preferred stock pay
ID: 2755396 • Letter: 8
Question
8.82%
12.32%
10.17%
11.62%
$5.47
$6.82
$8.27
$8.97
A firm's preferred stock pays an annual dividend of $8, and the stock sells for $72. Flotation costs for new issuances of preferred stock are 3% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 38%? (Round your answer to 2 decimal places.)
11.45
12.90
10.10
13.60
A firm is paying an annual dividend of $6.00 for its preferred stock which is selling for $62.00. There is a selling cost of $3.00. What is the after-tax cost of preferred stock if the firm's tax rate is 38%? (Round your answer to 2 decimal places.)Explanation / Answer
Rps = Dps/Pnet
where:
Dps = preferred dividends
Pnet = net issuing price
=6/(62-3)
=0.1017
Rps=10.17%
B)
Using above formula
dividend= cost of prefered stock*net issue proceds
=0.11*(64-2)
dividend==$6.82
C) Cost= 8/(72-3%*72)
=0.1145
after-tax cost of preferred stock=11.45%
Tax does not have any effect on prefered stock.
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