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    Managerial Finance 476(II): Do we need to make a tax adjustment when Medco Corporation issues preferred stock?

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    9. Medco Corporation can sell preferred stock for $80 with an estimated flotation cost of $3. It is anticipated that the preferred stock will pay $6 per share in dividends.
    a. Compute the cost of preferred stock for Medco Corp.
    b. Do we need to make a tax adjustment for the issuing firm?

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    Solution Preview

    For the company to receive funds from preferred stock financing, new preferred stock must be issued so flotation costs will be involved. The cost of ...

    Solution Summary

    This solution provides calculations for the cost of preferred stock and briefly discusses whether a tax adjustment is needed. This solution is 107 words.