Diggin Tools Plans to Issue New Preferred Stock, Which Has

question 18

Multiple Choice

Diggin Tools plans to issue new preferred stock, which has a market value of $85 per share. Holders of the stock will receive an annual dividend equal to $9.35. The flotation costs associated with the new issue were 6 percent and Diggin's marginal tax rate is 30 percent. What Diggin's component cost of preferred stock, r_ps?

• A)17.00%
• B)11.66%
• C)10.38%
• D)11.70%
• E)11.00%

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