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, is not deductable by the issuing firm.

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The cost of perpetual preferred stock is calculated by dividing the annual dividend by the market price, and no tax adjustment is needed because preferred dividends are not tax-deductible.

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