5. Bosio Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual

dividend. If the company were to sell a new preferred issue, it would incur a flotation cost

of 21.00% of the price paid by investors. What is the company's cost of preferred stock for

use in calculating the WACC?

a. 10.628%

b. 10.895%

c. 11.225%

d. 11.035%

e. 12.848%

6. You were hired as a consultant to Giambono Company, whose target capital structure is 60%

debt, 10% preferred, and the rest is common equity. The after-tax cost of debt is 3.9%, the

cost of preferred is 7.50%, and the cost of common using retained earnings is 11.25%. The

firm will not be issuing any new stock. What is its WACC?

a. 5.896%

b. 6.465%

c. 7.186%

d. 8.255%

e. 9.258%