Tempo Corp

question 40

Multiple Choice

Tempo Corp.will issue preferred stock to finance a new artillery line.The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share.Investment bankers have advised Tempo that flotation costs on the new preferred issue would be 5% of the selling price.Tempo's marginal tax rate is 30%.What is the relevant cost of new preferred stock?

• A) 7.00%
• B) 7.37%
• C) 10.00%
• D) 10.53%
• E) 15.00%

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