The 6 percent preferred stock of Mercer Livestock is selling for $62 a share. What is the firm's cost of preferred stock if the tax rate is 34 percent and the par value per share is $100? (Please calculate the arithmetic solution and show your work)

To calculate the cost of preferred stock, we need to consider the dividend yield of the preferred stock. Given that the preferred stock has a dividend yield of 6 percent and a par value of $100 per share, we can calculate the annual dividend as follows:

Annual Dividend = Preferred Stock Dividend Yield * Par Value per Share
= 6% * $100
= $6

Since the par value per share is $100, the dividend per share is $6.

Next, we need to calculate the after-tax dividend per share, considering the tax rate of 34 percent. We can calculate the after-tax dividend as follows:

After-Tax Dividend per Share = Dividend per Share * (1 - Tax Rate)
= $6 * (1 - 0.34)
= $6 * 0.66
= $3.96

Therefore, the after-tax dividend per share for Mercer Livestock's preferred stock is $3.96.

To calculate the cost of preferred stock, we divide the after-tax dividend per share by the market price of the preferred stock:

Cost of Preferred Stock = After-Tax Dividend per Share / Market Price per Share

Given that the market price per share is $62, we can calculate the cost of preferred stock as follows:

Cost of Preferred Stock = $3.96 / $62
≈ 0.0639 or 6.39%

Therefore, the cost of Mercer Livestock's preferred stock is approximately 6.39%.

To calculate the cost of preferred stock, we need to determine the dividend payment associated with the preferred stock.

First, we need to find the annual dividend payment per share:
Dividend payment per share = Preferred dividend rate * Par value per share
Dividend payment per share = 6% * $100
Dividend payment per share = $6

Next, we need to find the after-tax dividend payment per share. Since the tax rate is given as 34%, the after-tax dividend payment will be:
After-tax dividend payment per share = Dividend payment per share * (1 - Tax rate)
After-tax dividend payment per share = $6 * (1 - 0.34)
After-tax dividend payment per share = $6 * 0.66
After-tax dividend payment per share = $3.96

Finally, we can calculate the cost of preferred stock using the following formula:
Cost of preferred stock = Dividend payment per share / Preferred stock price
Cost of preferred stock = $3.96 / $62
Cost of preferred stock ≈ 0.064

Therefore, the cost of preferred stock for Mercer Livestock is approximately 6.4%.