A firm is paying an annual dividend of $6.00 for its preferred stock which is se

Question

A firm is paying an annual dividend of $6.00 for its preferred stock which is selling for $66.00. There is a selling cost of $2.00. What is the after-tax cost of preferred stock if the firm's tax rate is 35%? (Round your answer to 2 decimal places.) 8.02% 11.52% 9.38% 10.82% A firm is paying an annual dividend of $6.00 for its preferred stock which is selling for $66.00. There is a selling cost of $2.00. What is the after-tax cost of preferred stock if the firm's tax rate is 35%? (Round your answer to 2 decimal places.)

Explanation / Answer

Cost of preference share capital (Kp) = Preference dividend / Net proceeds

=6/(66-2)

=6 / 64

=0.09375 or 9.38%

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