Warephase Corporation has preferred stock outstanding. The stock has a 16% dividend rate. The stock’s market price is $80 per share, and its par value is $75. If new shares are issued, the firm will pay $3.50 per share in flotation costs. The corporate tax rate is 21%. What is the company’s cost of preferred stock financing?

Solution and Explanation:

Given data:

the market price of share = $80, the par value of share = $75, floatation cost = $3.5, corporate tax = 21 %

The  Annual dividend = 75 multiply with 16 percent = $12

Hence, the cost of preferred stock = Annual dividend divide by (Current price-Flotation cost)

= 12 / (80-3.5)

after solving, we get, which is equal to

= 15.69% (Approx)  (rounded off to 2 decimal places)

NOTE: The Tax rate would not affect the cost of preferred stock financing.

answer; according to the ( irs );

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.