Seven Eleven Stores is planning an expansion project that it desires to finance with newly issued preferred stock. The firm has an outstanding issue of preferred stock that pays a dividend of $4.25 per share, which is trading for $65 a share. The investment bankers have advised Seven Eleven that floatation costs will be 8% per share. What will be the cost of the newly issued preferred shares?
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Preferred stock is a perpetuity and the cost is given as
The solution explains how to calculate the cost of the newly issued preferred shares.