Tempo Corp

Multiple Choice

Tempo Corp.will issue preferred stock to finance a new artillery line.The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share.Investment bankers have advised Tempo that flotation costs on the new preferred issue would be 5% of the selling price.Tempo's marginal tax rate is 30%.What is the relevant cost of new preferred stock?

A) 7.00%
B) 7.37%
C) 10.00%
D) 10.53%
E) 15.00%