Question 5. After further negotiation, Roger and Benedicta agreed to use standard preferred stock after all. In her counter-offer, however, Benedicta has proposed that her shares pay cumulative noncash dividends of 10% of the original cost per share. At conversion, the accrued dividends would convert into common at the original cost per share paid by Benedicta. Again, as far as Roger can tell, Benedicta has priced the deal assuming only one round of financing would be required and as if non-dividend bearing standard preferred stock with a 50% required rate of return were used (as described in

Question a). a. What effect does using the security Benedicta proposed have on her effective rate of return? Defacto, how much of the company does Benedicta own?