Question

A firm is paying an annual dividend of $9.00 for its preferred stock which is selling for $69.00. There is a selling cost of $2.00. What is the after-tax cost of preferred stock if the firm's tax rate is 31%?

Answer 1

Answer:

13.43%

Explanation:

A firm is paying an annual dividend of $9.00

The preferred stock is sold at $69.00

The selling cost is $2

The tax rate is 31%

Therefore the after tax cost of preferred stock can be calculated as follows

= dividend/ price - flotation cost

= 9/69-2

= 9/ 67

= 0.1343 × 100

= 13.43%