ILK has preferred stock selling for 95 percent of par that pays a 7 percent annu
ID: 2643888 • Letter: I
Question
ILK has preferred stock selling for 95 percent of par that pays a 7 percent annual coupon. What would be ILk's component cost of preferred stock? (Round your answer to 2 decimal places.) Cost of preferred stock 1 % Suppose that LilyMac Photography expects EBIT to be approximately $46,000 per year for the foreseeable future, and that it has 500 10-year, 5 percent annual coupon bonds outstanding (Use Table 11.1) What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac's WACC? Tax rateExplanation / Answer
1.Annual coupon rate = 7%
Stock is selling at 95% of par value. Thus benefit to the company of issuing new stock 100-5% = 95%
Thus cost of preferred stock = 7% *95% = 6.65%
2. Kindly note that Table 11.1 is missing.