Compute the cost of preferred stock

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Reference no: EM1361195

Question #1
Why is the cost of debt less than the cost of preferred stock if both securities are priced to yield 10 percent in the market?

Question #2
ABC company can sell preferred stock for $70 with an estimated flotation cost of $2.50. It is anticipated that the preferred stock will pay $6 per share in dividends.
a. Compute the cost of preferred stock for ABC company.
b. Do we need to make a tax adjustment for the issuing firm?

Reference no: EM1361195

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