Prefered share 30 millions
Issue 8% prefered stocks at rm 40 per share with par value of rm 100. The floatation cost is 10% of the selling price .
The companys growth rate is 6% and tax rate is 40% .
What's after tax cost of preferred stock ?
To calculate the after-tax cost of preferred stock, we need to consider the dividend payment associated with the preferred stock. The formula to calculate the after-tax cost of preferred stock is as follows:
After-tax cost of preferred stock = Dividend payment / Net proceeds from issuing preferred stock
To calculate the dividend payment, we need to consider the dividend rate and the par value of the preferred stock. In this case, the dividend rate is 8% and the par value is RM 100. Therefore, the dividend payment per share can be calculated as follows:
Dividend payment per share = Dividend rate * Par value
= 8% * RM 100
Next, we need to calculate the net proceeds from issuing the preferred stock. The net proceeds will be the selling price of the stock minus the flotation costs. In this case, the selling price is RM 40 per share, and the flotation costs are 10% of the selling price.
Flotation costs = Selling price * Flotation cost rate
= RM 40 * 10%
Net proceeds = Selling price - Flotation costs
= RM 40 - Flotation costs
Now, we can calculate the after-tax cost of preferred stock by substituting the dividend payment and net proceeds into the formula mentioned earlier. Additionally, we need to consider the tax rate and the growth rate of the company.
After-tax cost of preferred stock = (Dividend payment per share / Net proceeds) * (1 - Tax rate) * (1 + Growth rate)