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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
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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
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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
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