What Is the After-Tax Cost of Preferred Stock That Sells

question 32

Multiple Choice

What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20 dividend when the tax rate is 35%?

• A) 4.20%
• B) 7.80%
• C) 8.33%
• D)12.00%

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Definitions:

Draft

A draft is a preliminary version of a document, plan, or design that is subject to revisions and improvements.

Buyer's Bank

The financial institution that represents a buyer in transactions, ensuring payment to the seller under agreed conditions.

Cashier's Check

A check issued by a bank and drawn from its own funds rather than those of a personal account, typically used for significant transactions where guaranteed funds are required.

Trade Acceptance

A draft that is drawn by a seller of goods ordering the buyer to pay a specified sum of money to the seller, usually at a stated time in the future. The buyer accepts the draft by signing the face of the draft, thus creating an enforceable obligation to pay the draft when it comes due. On a trade acceptance, the seller is both the drawer and the payee.