1. A company’s perpetual preferred stock currently trades at $87.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm’s cost of preferred stock?
8.25%
9.14%
8.69%
2. Chambliss Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.90; P0 = $27.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?
10.41%
12.11%
10.96%
11.53%