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How much will purple lemon shipbuilders inc pay per share

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Reference no: EM132758320

Question: Consider the case of Purple Lemon Shipbuilders Inc. Purple Lemon Shipbuilders Inc. has preferred stock that pays a dividend of $9 per share and sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting (or flotation) cost of 2.7%.

1. How much will Purple Lemon Shipbuilders Inc. pay per share to the underwriter?

2. Based on this information, what is Purple Lemon Shipbuilders Inc.'s cost of preferred stock capital?

3. Companies___________ (should/should not) make tax adjustments when calculating the (after-tax) cost of preferred stock because preferred dividends____________ (are/are not) tax deductible, so the company bears their full cost.

Reference no: EM132758320

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