2. Tax issues involving preferred stock Preferred dividends are paid from earnings. All else being equal, is a firm more or less likely to issue preferred stock if its tax rate increases? More likely Less likely Doesn't matter Consider the case of THC Endowment: THC Endowment is an institutional investor and owns preferred stocks worth a 20% stake in Shoe Building Inc. Shoe Building Inc. paid out dividends of $172,200 to THC Endowment this year. Shoe Building Inc, had issued perpetual preferred stock with a par value of $100 and pays a(n) 8.20% annual dividend. Investors' required return on Shoe Building Inc.'s preferred stock is 10.99%, and the tax rate for both the companies is 35%. Based on the information given, calculate the following: Value The current market price of Shoe Building Inc.'s preferred stock is: THC Endowment tax liability on its dividend income will be: Shoe Building Inc. also issued preferred stock whose dividends varied with the interest rate on the T-bill. Though this feature was intended to keep the price of the stock stable, the fluctuations in the Treasury yields between the dividend rate change dates led to price instability, and several institutional investors reallocated their investments from this preferred stock to other short-term investments. What kind of preferred stock did Shoe Building Inc. issue? Adjustable rate preferred stock O Market auction preferred stock