A company’s investment bankers say that a proposed new issue of 7.5 percent cumulative preferred stock with a par value of $10 a share can be sold to the public for $27 a share. The transaction costs will be $1 a share. What is the company’s cost of preferred stock financing?

Storico co. just paid a dividend of $3.15 per share. the company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. if the required return on the company’s stock is 12 percent, what will a share of stock sell for today?