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Problem:

ABC Company's preferred stock is currently selling for $24, and pays a perpetual annual dividend of $2.40 per share. Underwriters of a new issue of preferred stock would charge $2 per share in floatation costs. The firm's tax rate is 30%.

Required:

Question: Compute the cost of new preferred stock for ABC.

A) 7%

B) 10%

C) 7.64%

D) 10.91%

Note: Please explain comprehensively and give step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91147820

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