1. Which of the following statements is not correct? Why?

A. Preferred dividends paid are not tax deductible.

B. Interest expense is not tax deductible.

C. Common dividends paid are not tax deductible.

D. None of the statements above is correct.

2. A firms preferred stock currently sells for $100 per share and pays a dividend of $10 per share. However, the firm will only receive $95 per share from the sale of new preferred stock due to the floatation costs. Whats the firms component cost of Preferred stock? (Please show calculations).

A. 10.9

B. 10.5

C. 11.1

D. 11.8