XYZ
Corporation is trying to determine the appropriate cost of preferred
stock to use in determining the firm’s cost of capital. This firm’s
preferred stock is currently selling for $36, and pays a perpetual
annual dividend of $2.60 per share. Underwriters of a new issue of
preferred stock would charge $6 per share in flotation costs. The firm’s
tax rate is 30%. Compute the cost of new preferred stock for XYZ.
a. 6.2%
b. 7.2%
c. 8.7%
d. 16.7%
a. 6.2%
b. 7.2%
c. 8.7%
d. 16.7%
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