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General Bill's will issue preferred stock to finance a new artillery line. The firm's existing preferred stock pays a dividend of $4.00 per share ands is selling for $40.00 per share. Investment bankers haave advised General Bill that flotation costs on the new preferred issue would be 5% of the selling price. The General's marginal tax rate is 30%. What is the relevant cost of new preffered stock?

a) 15.00% b) 7.37% c)10.00% d) 10.53% e) 7.0% ?

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