Calculate the after-tax cost of preferred stock for ohio valley power company, which is planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price of $25 per share. flotation costs are $1.00 per share. ohio valley has a marginal income tax rate of 40%.

after tax cost of preferred stock = 13.54%

Explanation:

given data

sell = $100 million

cumulative preferred stock = $3.25

public price = $25 per share

Flotation costs = $1.00 per share

marginal income tax rate = 40%

to find out

after-tax cost of preferred stock

solution

we get here After tax cost of preferred stock  that is express as

after tax cost of preferred stock = cumulative preferred stock ÷ ( public price  - Flotation costs )   .........................1

put here value we get

after tax cost of preferred stock =

after tax cost of preferred stock = 13.54%

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