Register
A firm is paying an annual dividend of $10.00 for its preferred stock which is selling for $66.00. There is a selling cost of $3.00. What is the after-tax cost of preferred stock if the firm's tax rate
287,108 views
39 votes
39 votes
A firm is paying an annual dividend of $10.00 for its preferred stock which is selling for $66.00. There is a selling cost of $3.00. What is the after-tax cost of preferred stock if the firm's tax rate is 31%

User Hujtomi
by
2.9k points

1 Answer

14 votes
14 votes

Answer:

15.87%

Step-by-step explanation:

Calculation to determine the after-tax cost of preferred stock

Using this formula

Kp=Dividend/Price − floatation costs per share

Let plug in the formula

Kp=$10.00/$66-$3.00

Kp=$10.00/$63

Kp= 0.1587*100

Kp=15.87%

Therefore the after-tax cost of preferred stock is 15.87%

User Joque
by
3.0k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If you buy a one-year bond for $4,000 and the issuer pays you back $5,000 at the end of one year, the interest rate on the bond is
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that Group of answer choices bond interest is deductible for tax purposes. interest must be
Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow: (1) Work full time at a local accounting firm
In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend
Link Copied!