Reference no: EM133272567

At the present time, Turnbull Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Turnbull has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $11 per share. If the investors pay $97.95 per share for their investment, then Turnbull's cost of preferred stock (rounded to four decimal places) will be __________________ .

Alternatively, Turnbull is considering structuring its new preferred stock issue as a noncallable, fixed-maturity issue that would mature in 50 years. Management believes that this format may appeal to a wider range of potential investors. While outstanding, shareholders would receive the same dividend associated with the perpetuity format ($11 per year per share), and at maturity, would receive the share's par value of $50 per share.

Because the fixed-maturity shares should exhibit less risk (due to their shorter life), the selling price is expected to be $94.56 per share. Given these parameters, the expected after-tax cost of this version of the prospective preferred stock issue is __________________ .