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Compute the after tax cost of preferred stock

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Reference no: EM133173414

Question - The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations, she assumes the after-tax cost of debt is at least 2 percent less than that for preferred stock. Debt can be issued at a yield of 13.6 percent, and the corporate tax rate is 25 percent. Preferred stock will be priced at $51 and pay a dividend of $5.80. The flotation cost on the preferred stock is $2.

Required -

a. Compute the after tax cost of debt.

b. Compute the after tax cost of preferred stock.

Reference no: EM133173414

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