The cost of preferred stock is 6 percent, and the cost of debt is 8percent. The relevant tax rate is 35 percent. The company presidenthas approached you about its capital structure. He wants to know whythe company doesn’t use more preferred stock financing because itcosts less than debt. What would you tell the president?

The cost of preferred stock is 6 percent, and the cost of debt is 8percent. The relevant tax rate is 35 percent. The company presidenthas approached you about its capital structure. He wants to know whythe company doesn’t use more preferred stock financing because itcosts less than debt. What would you tell the president?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 1P

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