Consider the case of Purple Lemon Fruit Company: Ten years ago, Purple Lemon Fruit Company issued a perpetual preferred stock issue-called PS Alpha-that pays a fixed dividend of $6.50 per share and currently sells for $100 per share. Purple Lemon's management team is considering issuing a second issue of perpetual preferred stock. If the new issue tentatively called PS Beta-is actually sold, the company will incur an underwriting (or flotation) cost of 4.70%. In addition, the underwriters are anticipating the need to pay a dividend of $17.50 per share to attract new investors, and is expecting to sell the new shares for $95.00 per share As a component in Purple Lemon's weighted average cost of capital, PS Alpha shares currently exhibit a cost of: 4.88% 8.13% O 7.48% 6.50% If Purple Lemon elects to issue its PS Beta shares, it will pay net proceeds of per share in flotation costs, and will receive per share from its underwriters. Based on its underwriters' best estimates of the issue's expected future dividend and market price, the marginal cost of the PS Beta issue is expected to be: 24.16% O 14.50% 16.43% 19.33% make tax adjustments when calculating the (after-tax) cost of preferred stock because Companies preferred dividends tax deductible, so the company bears their full cost