Ten years ago, Purple Lemon Shipbuilders issued a perpetual preferred stock issue-called PS Alpha-that pays a fixed dividend of $7.50 per share and currently selis for $100 per share. Purple Lemon's management team is considering issuing a second issue of perpetual preferred stock. If the new issue-tentatively called PS Beta-is actually sold, the compeny will incurian underwriting (or flotation) cost of 5.10%. 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 $104.00 per share, As a component in Purple Lemon's weighted average cost of capital, PS Alpha shares currently exhibit a cost of: 6.38% 5.63% 7.50% 7.88% If Purple Lemon elects to Issue its PS Beta shares, it will pay per share from its underwriters. per share in flotation costs, and will recelve net proceeds of 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: 16,13% 12.4195 14.27% 9.318f Companies make tax adjustments when calculating the (after-tax) cost of preferred stock because preferred dividends tax deductible, so the company bears their full cost