a. Calculate the after-tax cost of borrowing from the motorcycle deal b. Calcula

Question

a. Calculate the after-tax cost of borrowing from the motorcycle deal b. Calculate the after-tax cost of borrowing through a second mortgage ip. on Bella home. d. Is there any other consideration that Bella ought to think about when decidina which loan to take out to pay for the motorcycle? Cost of preferred stock Taylor Systems hasjust 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 P9-7 after flotation costs, what is its cost? Cost of preferred stock Determine the cost for each of the following preferred stocks. P9-8 Par value $100 40 Sale price $101 Annual dividend 11% Preferred stock Flotation cost $9.00 $3.50 38

Explanation / Answer

(a). Cost of preferred stock = 12.63%

Explanation;

Annual dividend = 12%

Sale price of preferred stock = $97.50

Flotation costs = $2.50

Thus, net proceeds will be ($97.50 – $2.50) = $95

Cost of preferred stock = Annual dividends / Net proceeds

Now, let’s put the values in above given formula;

Cost of preferred stock = $12 / $95

= 12.63%

(b). Cost of preferred stock = 11.11%

Explanation;

Annual dividend = 10%

Net proceeds = $90

Cost of preferred stock = Annual dividends / Net proceeds

Now, let’s put the values in above given formula;

Cost of preferred stock = $10 / $90

= 11.11%

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