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Relevant Cost of New Preferred Stock based on Marginal Tax Rate

Question

A company will issue preferred stock to finance a new project. The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share. Investment bankers have advised that flotation costs on the new preferred issue would be 5% of the selling price. The marginal tax rate is 30%. What is the relevant cost of new preferred stock?

Summary

This question belongs to finance and discusses about calculating relevant cost of new preferred stock based on marginal tax rate.

Word count: NA

 

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