The CFO of Peaceful Book Binding Company has decided that the company needs to raise additional capital. It can sell preferred stock paying an annual $8 dividend per share for $100 per share; however, it will incur a flotation cost of 1.8% per share.

After it pays the underwriter, Peaceful Book Binding Company will receive _______ from each share of preferred stock that it issues.

A. $88.38 B. $1.53 C. $98.20 D. $1.80

Based on this information, Peaceful Book Binding Companys cost of preferred stock is _______.

A. 6.93% B. 7.34% C. 8.56% D. 8.15%

When raising funds by issuing new preferred stock, the company will incur an underwriting, or flotation, cost that ________ the cost of preferred stock.

A. Decreases B. Increases

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.

A. Significant B. Insignificant