Problem:
ABC Company's preferred stock is currently selling for $24, and pays a perpetual annual dividend of $2.40 per share. Underwriters of a new issue of preferred stock would charge $2 per share in floatation costs. The firm's tax rate is 30%.
Required:
Question: Compute the cost of new preferred stock for ABC.
A) 7%
B) 10%
C) 7.64%
D) 10.91%
Note: Please explain comprehensively and give step by step solution.