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After-tax cost of preferred stock

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A firm's preferred stock pays an annual dividend of $4, and the stock sells for $80. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 30%?

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The solution explains how to calculate the after-tax cost of preferred stock.

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Cost of new preferred stock = Annual Dividend/(Price - Flotation cost) ...

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