1. Determine the cost of preferred stock if it sells for $35 and pays $2.75 in dividends. The net price of the security, after flotation costs, is $32.50.

2. Michaels Corporation is contemplating a new investment to be financed 33% from debt. If the company is in a 34% tax bracket. Using information provided, what is the after-tax cost of capital to Walgreen for bonds?

The firm could sell new $1,000 par value bonds at a net price of $950.

The coupon interest rate is 13%.

The bonds will mature in fifteen years.