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Diao Corporation is estimating its cost of preferred stock

Finance

Diao Corporation is estimating its cost of preferred stock. It has outstanding a $100 face value issue that pays a $11 annual dividend and is currently selling for $105.00. Diao would pay a 5% flotation cost to issue new preferred stock and pays income taxes at a 21% rate.

 

a)    Determine the preferred stock investors' required rate of return

b)    Determine the cost of a new issue of preferred stock to Diao Corporation.

 

Option 1

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