Respuesta :
Answer:
after tax cost of preferred stock = 13.54%
Explanation:
given data
sell = $100 million
cumulative preferred stock = $3.25
public price = $25 per share
Flotation costs = $1.00 per share
marginal income tax rate = 40%
to find out
after-tax cost of preferred stock
solution
we get here After tax cost of preferred stock that is express as
after tax cost of preferred stock = cumulative preferred stock ÷ ( public price - Flotation costs ) .........................1
put here value we get
after tax cost of preferred stock = [tex]\frac{3.25}{25-1}[/tex]
after tax cost of preferred stock = 13.54%
The after-tax cost of preferred stock should be 13.54%
Calculation of after-tax cost of preferred stock:
Since Ohio Valley Power Company is planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price of $25 per share. Flotation costs are $1.00 per share.
So, after tax preferred stock cost should be
= Cumulative preferred stock ÷ (Price per share - flotation cost)
= 3.25 ÷ (25-1)
= 13.54%
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