XYZ Corporation is trying to determine the appropriate cost of preferred stock to - 3435

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Request Description

XYZ 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, and pays a perpetual annual dividend of $2.60 per share. Underwriters of a new issue of preferred stock would charge $6 per share in flotation costs. The firm’s tax rate is 30%. Compute the cost of new preferred stock for XYZ.

a. 6.2%

b. 7.2%

c. 8.7%

d. 16.7% 

Solution Description

XYZ Corporation is trying to determine the appropriate cost of preferred stock to use in determining