Ten years ago, Purple Lemon Shipbuiders issued a perpetual preferred stock issue-called p5 Apha-that pays a fixed dividend of $5.50 per share and currentfy selts for $100 per stiare. Parple temon's manogement te am ts considering issuing a second issue of perpetual preferred stock. If the new issue-tentatively called ps Beta-is actually sobld, the company will incur an underwriting (or flotation) cost of 5.30%. In addition, the underwriters are anticipating the need to pay a dividend of $17.25 per share to attract new investors, and is expecting to sell the new shares for $107.00 per share. As a component in Furple Lemon's weighted average cost of capital, pS Alpha shares currently exhibit a cost of: 3,507 6325 5.294 per share in flotation costs, and wil receive oet proceeds of per share from is underwriters. to bel 12.77% it megat 35,07 - covdend and maket prce, the maronal cont of the PS Deta issue is expected 22.965 Based on its underwriters' best estimates of the issue's expe $5.67 fe dividend and market price, the marginal cost of the ps Beta issue is expected to be: 12.77%17.02%22.98%14.47% Companies make tax adjustments when caiculating the (after-tax) cost of proforred stock because preferred dividends tax decuctible, so the company bears their full cost