Assignment:
General Bill's will issue preferred stock to finance a new artillery line. The firm's existing preferred stock pays a dividend of $4.00 per share and is sell- ing for $40 per share. Investment bankers have advised General Bill that flotation costs on the new preferred issue would be 5% of the selling price. The General's marginal tax rate is 30%. What is the relevant cost of new preferred stock?
a. 15.00%
b. 7.37%
c. 10.00%
d. 10.53%
e. 7.00%