Ten years ago, Happy Lion Manufacturing issued a perpetual preferred stock issue-called PS Alpha-that pays a fixed dividend of $9.00 per share and currently sells for $100 per share. Happy Lion's management tam is considering issuing a second issue of perpetual preferred stock. If the new issue-tentatively called PS Beta--is actually sold, the company will incur an underwriting (or flotation) cost of 5.90%. In addition, the underwriters are anticipating the need to pay a dividend of $12.25 per share to attract new investors, and is expecting to sell the new shares for $101.00 per share. As a component in Happy Lion's weighted average cost of capital, PS Alpha shares currently exhibit a cost of: 11.25% 09.45% 9.00% 6.75% If Happy Lion elects to issue its PS Beta shares, it will pay proceeds of per share from its underwriters. per share in flotation costs, and will receive net Based on its underwriters' best estimates of the issue's expected future dividend and market price, the marginal cost of the PS Beta issue is expected to be: 9.67% 16.11% 17.40% 12.89% Companies preferred dividends make tax adjustments when calculating the after-tax) cost of preferred stock because tax deductible, so the company bears their full cost