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) 10.53 D) 15.00 E) 10.00
Question 2
If a project is acceptable using the NPV criterion, then it will also be acceptable using the
discounted payback period since both methods use discounted cash flows to make the accept/reject
decision.
Indicate whether the statement is true or false
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