National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which has a stated annual dividend of $8 per share. The company has been losing money and has not paid preferred dividends for the last five years. There are 480,000 shares of preferred stock outstanding and 780,000 shares of common stock. a. How much is the company behind in preferred dividends? (Do not round intermediate calculations. Input your answer in dollars, not millions (e.g. $1,234,000).) Preferred dividends in arrears b. If NHC earns $20,000,000 in the coming year after taxes but before dividends, and this is all paid out to the preferred stockholders, how much will the company be in arrears (behind in payments)? Keep in mind that the coming year would represent the sixth year. (Do not round intermediate calculations. Input your answer in dollars, not millions (e.g. $1,234,000).) Amount still in arrears c. Can the firm pay any common stock dividends if the conditions in part b exist? Yes The treasurer of Kelly Bottling Company (a corporation) currently has $230,000 invested in preferred stock yielding 7 percent. He appreciates the tax advantages of preferred stock and is considering buying $230,000 more with borrowed funds. The cost of the borrowed funds is 9 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 2 percent more for funds than the company will be earning on the investment. Kelly Bottling is in a 30 percent tax bracket, with dividends taxed at 10 percent. a. Compute the amount of the aftertax income from the additional preferred stock if it is purchased. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Aftertax income $ 14,490 b. Compute the aftertax borrowing cost to purchase the additional preferred stock. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Aftertax borrowing cost c. Should the treasurer proceed with his proposal? No Yes d. If market interest rates and dividend yields increase six months after a purchase decision is made, will the impact of those increases be favorable or unfavorable for the firm? Favorable Unfavorable