5. Novomix Inc. pays its preferred stockholders a dividend of $1.75 every year. The currentprice of one of their preferred shares is $35.30. Novomix pays 21% in corporate tax. Whatis the cost of its preferred shares?a) 15.66%b) 19.83%c4.96%3.92%

Cost of preferred stock= Annual dividend/Share price.1.75/35.30= 0.0496 or 4.96%

Answered: 5. Novomix Inc. pays its preferred…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

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Chapter15: Dividend Policy

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Problem 1P

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5. Novomix Inc. pays its preferred stockholders a dividend of $1.75 every year. The current price of one of their preferred shares is $35.30. Novomix pays 21% in corporate tax. What is the cost of its preferred shares? a) 15.66% b) 19.83% c4.96% 3.92%