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Its investment bankers have told Donner Corporation that it can issue a 25year,8% annual payment bond at par. They also stated that the company can
Its investment bankers have told Donner Corporation that it can issue a 25year,8% annual payment bond at par. They also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 21% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.3%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par? Do not round your intermediate calculations. A) 8.13% B) 3.18% C) 5.81% D) 1.3% E) 9.13% A
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