Problem:
Bosio Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors.
Required:
Question: What is the company's cost of preferred stock for use in calculating the WACC?
Note: Please provide reasons to support your answer.