Q 40

AT&T Inc. (T)has a preferred stock issue outstanding on which it pays an annual dividend of $1.95. The stock price is currently at $37.91. If the company were to sell a new issue of preferred stock today with the same characteristics as its outstanding issue, it would incur flotation costs of $1.23 per share. What would you estimate the cost of preferred stock financing to be for the firm?

1. 6.57%
2. 5.32%
3. 4.96%
4. 6.31%