Relevant Cost of New Preferred Stock based on Marginal Tax Rate
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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.
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