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Firms that carry preferred stock in their capital mix want to not only distribute dividends to Common stockholders also maintain credibility in the capital markets
Firms that carry preferred stock in their capital mix want to not only distribute dividends to Common stockholders also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders. Consider the .case of Purple Lemon Shipbuilders Inc. Purple Lemon Shipbuilders Inc, has preferred stock that pays a dividend of $9 per share end sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting (or flotation) cost of 1.8%. How much will Purple Lemon Shipbuilders Inc. pay per share to the underwriter? $1.80 $1.98 $88.38 $98.20 Based on this information, what is people Lemon Shipbuilders Inc's cost of preferred stock capital? 10.08% 7.79% 9.16% 7.33% Companies ___________ make tax adjustments when calculating the (after-tax) cost of preferred stock because preferred dividends _________ tax deductible, so the company bears their full cost
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