Question: A company plans to float $25 million in bonds and $10 million in preferred stock. The current price of it's preferred stock is $50 and it pays $2.60 in preferred dividends, which is likely to continue for the next five years. The company's investment banking firm will charge 5% in flotation fees to float these securities. The banking firm will sell the bonds with a 20-year maturity and a 6.5% annual coupon rate at par value. The company has a tax rate of 35%. What is the cost of preferred stock and debt to the company after taxes,taking into account the flotation costs?
choices are :
stock 5.9% bond 2.8%,
stock 5.5% bond 4.5%,
stock 4.65% bond 5.6%
stock 3.9% bond 4.1%