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P 11-3Pr 11-4 Pr 11-5 Pr 11-6 Pr 11-9 Pr 11-10 Problem 1-13 Cost of...

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P 11-3Pr 11-4 Pr 11-5 Pr 11-6 Pr 11-9 Pr 11-10 Problem 1-13 Cost of preferred stock [LO3] Medco Corporation can sell preferred stock for $90 with an estimated flotation cost of $2. It is anticipated the preferred stock will pay $8 per share in dividends. a. Compute the cost of preferred stock for Medco Corp. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) b. Do we need to make a tax adjustment for the issuing firm? Input variables Preferred stock price Flotation cost Dividend $90 S2 $8 Kp is cost of preferred stock Dp is the annual dividend on preferred stock Pp is the price of preferred stock F is flotation, or selling. cost Kp-Dp/(Pp-F) Solution and Explanation: a. Cost of preferred Tax adjustment needed

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