The company’s 5%, 100 par preferred stock currently seels for 90. Tax rate = 40%. The after tax cost of PS capital is: A. 5% B. 5.6% C. 5.9% D. 6.3%
is this supposed to be a trick question? it seems like the answer would be b, is it not?
Yeah i agree with you… there are no tax effects on PS 5/90 = 5.55%
Just to throw something else out… 5*1.06 / 90 C
Ya this is not a trick question… just forgot how to compute the cost… just curious… Whats the intuition behind dividing the dividend, 5, by the selling price of the stock? If the PS price move, the cost of PS increase/decrease along with the price movement?