Surfside Tacos is thinking of raising new funds by issuing preferred stock which would lead the firm to incur flotation costs of 2%. The new preferred stock would have a stated dividend of $5 per share and is expected to sell for $60. What is the after-tax cost of preferred stock for this firm? Assume a tax rate of 40%.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Surfside Tacos is thinking of raising new funds by issuing preferred stock which would lead the firm to incur flotation costs of 2%. The new preferred stock would have a stated dividend of $5 per share and is expected to sell for $60. What is the after-tax cost of preferred stock for this firm? Assume a tax rate of 40%.       

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