Plowman Industries Can Issue a 25-Year, 8

question 8

Multiple Choice

Plowman Industries can issue a 25-year, 8.1% annual payment bond at par. They also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 40% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.0%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par?

• A) 6.66%
• B) 6.99%
• C) 7.34%
• D) 7.71%
• E) 8.09%

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Definitions:

Unanticipated Shortage

An unexpected deficiency or lack of supply, often referring to situations where resources or items are not available in the needed amount.

Supply Item

A term for any single piece of inventory or material used in the operations or maintenance of a facility or system.

Inventory

A list of supplies used regularly and the quantities in stock.

Periodic Supply

A method of inventory resupply that occurs at regular, predetermined intervals.