Question

Purple Lemon Fruit Company has preferred stock that pays a dividend of $5 per share and sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting (or flotation) cost of 2.7%. How much will Purple Lemon Fruit Company pay per share to the underwriter? O $2.70 per share O $2.97 per share $97.30 per share $87.57 per share Based on this information, what is Purple Lemon Fruit Company's cost of preferred stock capital? 05.14% O 4.63% O 4.88% O 5.40% Companies make tax adjustments when calculating the (after-tax) cost of preferred stock because preferred dividends tax deductible, so the company bears their full cost.

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General -11AA = = = A Wrap Text Merge Merge & Center - Center BIU - D SF $ 4:0 .00 :.: Insert Delete Format % % , Number Conditional Format Formatting as Table Styles Cell Styles AutoSum - A Fill Sort & Clear Filter Editing Find & Select Font Alignment Cells Fax KUKK KL KM KN KO KP KQ KR KS K T KU E Copy Paste Format Painter Clipboard KR143 KI 133 134 135 136 137 1 AMOUNT PAID TO UNDERWRITER = $ 2.70 (100 X 2.7%] NET PROCEEDS 100 -2.7 $ 97.30 138 5.14% [5/(100 -2.7)] 2 COST OF PREFERRED STOCK = DIVIDEND/(PRICE - f) f = FLOTATION COST 3 SHOULD NOT ARE NOT 139 140 141 142 143 144 145 146 147 148 149 150 HEN Rea NOTE PREFERRED STOCK IS NOT TAX DEDUCTIBLE LIKE DEBT SO NO NEED TO TAKE INTO ACCOUNT TAX convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean KE CAPM UTILITY, SHARPE, beta ferences: KN82 YIELD bond portfolio cap stru WACCRESI el BOI 140% 70- B 9 . * . 40 ENG 01-11-2019 .