cUmputed lage) computed in part a? Round to uit liumber The treasurer of Kelly Bottling Company (a corporation) currently has 150,000 invested in preferred stock yielding 8 percent. He appreciates t advantages of preferred stock and is considering buying $150.000 more with borrowed funds. The cost of the borrowed funds is 13 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 5 percent more for funds than the company will be rning on the investment. Kelly Bottling is in a 35 percent tax bracket, with he tax ea dividends taxed at 20 percent. a. Compute the amount of the aftertax income from the additional preferred stock if it is purchased. Compute the aftertax borrowing cost to purchase the additional preferred stock. That is, multiply the interest cost times (1 -T). Should the treasurer proceed with his proposal? If interest rates and dividend yields in the market go up six months after a decision to purchase is made, what impact will this have on the outcome? b. c. d. 22. Barnes Air Conditioning Inc. has two classes of preferred stock: floating rate preferred stock and straight (normal) preferred stock. Both issues have a par value of $100. The floating rate preferred stock pays an annual dividend yield of 4 percent, and the straight preferred stock pays 5 percent. Since the issuance of the two securities, interest rates have gone up by 2.50 percent for each issue. What is the price of the floating rate preferred stock likely to be? b. What is the price of the straight preferred stock likely to be? Refer back to Both securities will pay their year-end dividend today. d use Formula 10-4 to answer this question. pter 10 an