SW Ink's Preference Shares, Which Pays a R5 Dividend Each

question 71

Multiple Choice

SW Ink's preference shares, which pays a R5 dividend each year, currently sells for R62.50.The company's marginal tax rate is 40 percent.What is the cost of preference share, rps, that should be included in the computation of the SW Ink's weighted average cost of capital (WACC) ?

• A) 8.0%
• B) 4.8%
• C) 3.2%
• D) The dividend growth rate is needed to compute kps; so not enough information is given to answer this question.
• E) None of the above is correct.

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