Problem:
The following information is given about your company. The company needs raise new capital to expand its facilities. The company's optimum capital structure has been 45% debt, 10% preferred stock and 45% equity. The company will maintain this capital structure in financing this expansion plan. Currently the company's common stock is traded at a price of $20 per share. The last dividend paid on the common stock was $1.50 per share. The constant growth rate is 8%. The company's preferred stock is selling at $50 and has a quarterly preferred dividend of $1.5. Flotation costs have been estimated at 8% on the common stocks and 3% on the preferred stocks. The company has some bonds with $1000 par value outstanding, the market price of the bonds is $975, and the bonds have 9 years to maturity. The coupon rate on those bonds is 8% with semi-annual payments. The tax rate is 46%.
Required:
Question: What is the cost of issuing new preferred stock?
Note: Please provide equation and explain comprehensively and give step by step solution.