Problem:
Its investment bankers have told Buger King that it can issue a 25-year, 8.1% annual payment bond at par. They also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 40% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.0%, which would represent an after-tax risk premium.
Required:
Question 1: What coupon rate must be set on the preferred in order to issue it at par?
Note: Please show basic calculation