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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 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.

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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 ...

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