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

Question

Quizplus · Accepted Answer

Preferred stock dividends are not tax-deductible, so the tax rate does not affect the cost. The cost is simply 8% of $5,000,000, which is $400,000.

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