Multiple Choice
Plowman Industries can issue a 25-year, 8.1% annual payment bond at par. They also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 40% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.0%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par?
A) 6.66%
B) 6.99%
C) 7.34%
D) 7.71%
E) 8.09%
Correct Answer:
Verified
Correct Answer:
Verified
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