Becker Glass Corporation
Becker Glass Corporation expects to have earnings before interest and taxes during the coming year of $1,000,000, and it expects its earnings and dividends to grow indefinitely at a constant annual rate of 12.5 percent. The firm has $5,000,000 of debt outstanding bearing a coupon interest rate of 8 percent, and it has 100,000 shares of common stock outstanding. Historically, Becker has paid 50 percent of net earnings to common shareholders in the form of dividends. The current price of Becker's common stock is $40, but it would incur a 10 percent flotation cost if it were to sell new stock. The firm's tax rate is 40 percent.
-Refer to J.Ross and Sons.What is the firm's cost of newly issued preferred stock?

Question

Quizplus · Accepted Answer

The question does not provide sufficient information to calculate the cost of newly issued preferred stock. The cost of preferred stock typically depends on the dividend rate and the net issuing price, neither of which are provided in the scenario. The answer choice B (12.5%) is mentioned as the growth rate of earnings and dividends, not the cost of preferred stock.

Becker Glass Corporation Becker Glass Corporation Expects to Have Earnings Before Interest and Before