Firm X has a tax rate of 21%. The price of its new preferred stock is $75 and its flotation cost is $3.15. The cost of new preferred stock is 8%. What is the firm's dividend?

Question

Quizplus · Accepted Answer

The cost of new preferred stock is given as 8%, which is essentially the dividend rate. To find the dividend, you multiply the net price (after flotation costs) by this rate. The net price is $75 - $3.15 = $71.85. Therefore, the dividend is 8% of $71.85, which is $71.85 * 0.08 = $5.748, or rounded to $5.75.

Firm X Has a Tax Rate of 21