The cost of perpetual preferred stock is found as the preferred's annual dividend divided by the market price of the preferred stock. No adjustment is needed for taxes because preferred dividends, unlike interest on debt, are not deductable by the issuing firm.

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Preferred dividends are not deductible by the issuing firm for tax purposes, so no adjustment is needed for taxes when calculating the cost of perpetual preferred stock.

The Cost of Perpetual Preferred Stock Is Found as the Preferred's