Question 2 ( 7 marks ) A firm with a 40 % tax rate has $10 million of preferred shares outstanding ( each share has a $100 par value ) that pay a dividend of 10 percent and are callable at a premium of 6 percent . Issuing and underwriting expenses of $700, 000 would have to be incurred . ( a ) Assume that current dividend rates have dropped to 8 percent . What would be the market price of a preferred share ( if it were non- redeemable / non - callable / non - retractable ) ? ( 1 mark ) ( b ) To what level would the dividend rate ( on comparable issues ) have to drop to in order to make refinancing attractive ? ( 2 marks )