A corporation has $5,000,000 in 8 percent preferred stock outstanding and a 40 percent tax rate. The aftertax cost of the preferred stock is___________.
A) $160,000
B) $666,667
C) $240,000
D) $400,000

Question

Quizplus · Accepted Answer

The cost of preferred stock is not tax-deductible, so the aftertax cost is the same as the before-tax cost. The cost is 8% of $5,000,000, which is $400,000.

A Corporation Has $5,000,000 in 8 Percent Preferred Stock Outstanding