Tempo corp. 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 selling for $40 per share. investment bankers have advised tempo that flotation costs on the new preferred issue would be 5% of the selling price. tempo's marginal tax rate is 30%. what is the relevant cost of new preferred stock? a) 7.00%b) 7.37%c) 10.00%d) 10.53%e) 15.00%

Relevant cost of new preferred stock = 10.53%

Explanation:

Given:

Dividend = $4.00 per share

Selling for = $40 per share.

Flotation costs =  5% of the selling price.

Marginal tax rate is 30%.

We can compute the cost of new preferred stocks using the following formula:

∴ Relevant cost of new preferred stock = 10.53%

Therefore, the correct option is (d)

answer; /// i believe its (bas design);

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.