Purple Lemon Fruit Company has preferred stock that pays a dividend of $$9$ per share and sells for $$100$ per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting $($or flotation$)$ cost of $2\mathrm{.}2\%.$

How much will Purple Lemon Fruit Company pay per share to the underwriter?

$$88\mathrm{.}02$ per share

$$2\mathrm{.}42$ per share

$$2\mathrm{.}20$ per share

$$97\mathrm{.}80$ per share

Based on this information, what is Purple Lemon Fruit Company's cost of preferred stock capital?

$9\mathrm{.}66\%$

$9\mathrm{.}20\%$

$8\mathrm{.}74\%$

$10\mathrm{.}12\%$

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.