Calculate the Cost of Preferred Stock for Ohio Valley Power

Multiple Choice

Calculate the cost of preferred stock for Ohio Valley Power Company, which is planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price of $25 per share. Flotation costs are $1.00 per share. Ohio Valley has a marginal income tax rate of 40%.

A) 13.0%
B) 7.8%
C) 8.12%
D) 13.54%