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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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