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:

Coupon Rate

The annual interest rate paid by a bond, expressed as a percentage of the bond's face value.

Tax Rate

The percentage at which an individual or corporation is taxed, which can apply to income, capital gains, or property values.

Earnings Per Share

A measure of a company's profitability that calculates the portion of a company's profit allocated to each outstanding share of common stock.

Market Price

The current financial demand for buying or selling a service or asset.