Calculate the cost of preferred stock for Ohio Valley Power Company, which is planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price of $25 per share. Flotation costs are $1.00 per share. Ohio Valley has a marginal income tax rate of 40%.

a.13.0%

b.7.8%

c.8.12%

d.13.54%

If a firm had the following mix of capital components:

Debt

$25,000

Preferred stock

$20,000

Common stock

$55,000

its capital structure would be described as:

a. 25% debt and 75% equity

b. 25% debt, 20% preferred stock, and 55% equity

c. 45% debt and 55% equity

d. both a and b