Instructions to solve the problem:

You are required to use a financial calculator or spreadsheet (Excel) to solve the problem related to the cost of capital.

You are required to show the following 3 steps for the problem.

1. Describe and interpret the assumptions related to the problem.
2. Apply the appropriate mathematical model to solve the problem.
3. Calculate the correct solution to the problem. Submit all answers as percentages and round to two decimal places.

Problem:

L. Bob Rife Company's preferred stock is currently selling for $78.00 and pays a perpetual annual dividend of $4.90 per share. New issues of preferred stock would incur $7 per share in flotation costs. Compute the cost of new preferred stock.

Thank you,