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Firms that carry preferred stock in their capital mix want to not only distribute dividends to common shareholders but also maintain credibility in the capital
Firms that carry preferred stock in their capital mix want to not only distribute dividends to common shareholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred shareholders. Consider the case of Globo-Chem Co.: Globo-Chem Co. has preferred stock that pays a dividend of $7 per share and sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting (or flotation) cost of 2.7%. How much will Globo-Chem Co. pay per share to the underwriter? $97.30 $2.70 $$2.97 $87.57 Based on this information, what is Globo-Chem Co.'s cost of preferred stock capital? 6.83% 7.55% 6.11% 7.19%
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