Question a company plans to float 25 million in bonds and, Ask an Expert

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Question: A company plans to float $25 million in bonds and $10 million in preferred stock. The current price of it's preferred stock is $50 and it pays $2.60 in preferred dividends, which is likely to continue for the next five years. The company's investment banking firm will charge 5% in flotation fees to float these securities. The banking firm will sell the bonds with a 20-year maturity and a 6.5% annual coupon rate at par value. The company has a tax rate of 35%. What is the cost of preferred stock and debt to the company after taxes,taking into account the flotation costs?

choices are :

stock 5.9% bond 2.8%,

stock 5.5% bond 4.5%,

stock 4.65% bond 5.6%

stock 3.9% bond 4.1%

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Accounting Basics, Accounting

Category:- Accounting Basics
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