What is after-tax cost of preferred stock

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1. The coupon rate on an issue of debt is 11%. The yield to maturity on this issue is 11%. The corporate tax rate is 38%. What would be the approximate after-tax cost of debt for a new issue of bonds?

5.47%

8.27%

6.82%

8.97%

2. A firm's preferred stock pays an annual dividend of $5, and the stock sells for $86. Flotation costs for new issuances of preferred stock are 8% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 37%?

8.47

4.97

6.32

7.77

Reference no: EM131990073

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