Ten years ago, Happy Lion Manufacturing issued a perpetual preferred stock issuecalled PS Alphathat pays a fixed dividend of $7.00 per share and currently sells for $100 per share. Happy Lions management team is considering issuing a second issue of perpetual preferred stock. If the new issuetentatively called PS Betais actually sold, the company will incur an underwriting (or flotation) cost of 4.50%. In addition, the underwriters are anticipating the need to pay a dividend of $15.25 per share to attract new investors, and is expecting to sell the new shares for $108.00 per share.

As a component in Happy Lions weighted average cost of capital, PS Alpha shares currently exhibit a cost of:

8.75%

8.05%

5.25%

7.00%

If Happy Lion elects to issue its PS Beta shares, it will pay ____ per share in flotation costs, and will receive net proceeds of _____ per share from its underwriters.

Based on its underwriters best estimates of the issues expected future dividend and market price, the marginal cost of the PS Beta issue is expected to be:

18.49%

14.79%

19.23%

19.97%

When raising funds by issuing new preferred stock, the company will incur an underwriting, or flotation, cost that ______ the cost of preferred stock. Because the flotation cost is usually expressed as a percentage of price of each share, the difference between the cost of preferred stock with and without flotation cost is _______ enough to not ignore.