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11/9. 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

Shows how to calculate the cost of preferred stock and what tax treatment is required for preferred stock.

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Part A

Cost of preferred Stock = Dividend per share / ...

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