Calculating the cost of the preferred stock, Finance Basics

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Calculating the cost of the preferred stock

Taylor Systems has just issued preferred stock. The stock has a 12% annual dividend and a $100 par value and was sold at $97.50 per share. In addition, flotation costs of $2.50 per share must be paid.

a. Calculate the cost of the preferred stock.
b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost?

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Finance Basics: Calculating the cost of the preferred stock

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