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Browning Bookbinding LTD has the following capital structure: 65% common & 5% preferred stock; 30% long-term debt. The fair-value risk premium of Browning Bookbinding LTD
Browning Bookbinding LTD has the following capital structure: 65% common & 5% preferred stock; 30% long-term debt. The fair-value risk premium of Browning Bookbinding LTD stock vs. long-term government bonds is 12%. The 20-year US Govt. bond yield is 5.0%. Brownings credit rating is BBB+ and the credit spread for 20-year BBB+ corporate debt is 2.5%. Brownings tax rate is 35%. The firm recently issued preferred stock at $50/share par value that pays a 10% dividend yield. Issuance costs of the preferred were 5% of par.
- Calculate the cost of preferred stock net of issuance? (5 pts)
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