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ABC Entity has $4.5M of capital which consists of debt, common stock, retained earnings, and preferred stock. The total preferred stock is $500,000 which is

ABC Entity has $4.5M of capital which consists of debt, common stock, retained earnings, and preferred stock. The total preferred stock is $500,000 which is composed of 10,000 shares with a par value of $50 each. The current market value of each preferred share is $55. ABC pays preferred shareholders a 10% dividend on the par value each year. ABC's tax rate is 21%. What is the cost of existing preferred stock?

a.

1%

b.

6.5%

c.

11%

d.

9%

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