JPR Company's preferred stock is currently selling for $28.00, and pays a perpetual annual dividend of $2.00 per share. Underwriters of a new issue of preferred stock would charge $3 per share in flotation costs. The firm's tax rate is 40%. Compute the cost of new preferred stock for JPR.

8%

Explanation:

Data provided in the question

Current selling price of the preferred stock = $28

Annual dividend = $2 per share

Flotation cost = $3 per share

Firm tax rate = 40%

So by considering the above information, the cost of new preferred stock is

= Annual dividend per share ÷ (Current selling price of the preferred stock - Flotation cost)

= $2 ÷ ($28 - $3)

= $2 ÷ $25

= 8%

We simply applied the above formula so that the cost of preferred stock could arrive

Operating cash flow $56,017.10

Explanation:

The computation of the operating cash flow is shown below:

Sales (8,500 × $55) $467,500

Less: Variable cost (8,500 × 28.62) -$243,270

Fixed costs -$170,000  

Depreciation -$62,000

Income before tax -$7,770

Less: Tax -1,787.10

Net Income -$5,982.9

Add: Depreciation  62,000

Operating cash flow $56,017.10