Calculate the cost of new preferred stock


Question: X Corporation is trying to determine the appropriate cost of preferred stock to use in determining the firm's cost of capital.  This firm's preferred stock is currently selling for 36 dollar, and pays a perpetual annual dividend of 2.60 dollar per share.  Underwriters of a new issue of preferred stock would charge USD 6 per share in flotation costs. The firm's tax rate 30 percent. Calculate the cost of new preferred stock XYZ.

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Finance Basics: Calculate the cost of new preferred stock
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