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10 April, 10:54

Barton Industries can issue perpetual preferred stock at a price of $56 per share. The stock would pay a constant annual dividend of $3.72 per share. If the firm's marginal tax rate is 25%, what is the company's cost of preferred stock?

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  1. 10 April, 12:08
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    The company's cost of preferred stock is 8%

    Explanation:

    Given that:

    Annual dividend : $3.72 per share Tax rate : 25% = 0.25 Preferred stock price: $56 per share

    To find the company's cost of preferred stock, we use this formula:

    Annual dividend/price of preferred stock * (1-tax rate)

    = $3.72 / $56 (1-0.25)

    = 0.08

    0.08*100% = 8%

    So the company's cost of preferred stock is 8%

    Hope it will find you well
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