4. The cost of preferred stock Firms that carry preferred stock in their capital mix want to not only distribute dividends to common stockholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders. Consider the case of Happy Lion Manufacturing Inc. Happy Lion Manufacturing Inc. has preferred stock that pays a dividend of $5 per share and sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares Incur an underwriting (or flotation) cost of 1.3%. How much will Happy Lion Manufacturing Inc. pay per share to the underwriter? $1.30 per share $1.43 per share $88.83 per share $98.70 per share Based on this information, what Happy Lion Manufacturing Inc.'s cost of preferred stock capital? 5.58% 4.06% 5.07% 4.82% Companies make tax adjustments when calculating the (after-tax) cost of preferred stock because preferred dividends deductible, so the company bears their full cost. tax