Problem: Taylor Systems has just issued preferred stock. The stock has a 12% annual dividend and a $100 par value and was sold at $97.50 per share. In addition, flotation costs of $2.50 per share must be paid.
1) Calculate the cost of the preferred stock.
2) If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost?