Yasemin Hilfiger has just issued a callable preferred stock that is callable in 6 years at $70 (redemption price). The stock is currently selling for $60 (issue price) but there will be $3 issuance costs per share. Everyone including the company and its investors are expecting that the stock will be called at that time. What is the after-tax cost of this preferred stock assuming it is called, if the stock pays $6 in dividends annually and the marginal tax rate is 40%?
- 13.24%
- 7.95%
- 12.96%
- 18.09%