Question

Afirm's preferred stock pays an annual dividend of $6, and the stock sells for $85. Flotation costs for new issuances of preferred stock are 7% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 33%? (Round your answer to 2 decimal places.) Multiple Choice Ο Ο Ο Ο

Answer 1

Correct answer is option a.7.59%

Since it is a preferred stock,after tax cost is simply means cost of preferred stock.

Cost of preferred stock = Dividend / Price - flotation cost

=6 / [ 85-7%]

=6/79.05

=7.59%