The treasurer of Kelly Bottling Company $($a corporation$)$ currently has $$340,000$ invested in preferred stock yielding $6$ percent. He appreciates the tax advantages of preferred stock and is considering buying $$340,000$ more with borrowed funds. The cost of the borrowed funds is $14$ percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying $8$ percent more for funds than the company will be earning on the investment. Kelly Bottling is in a $35$ percent tax bracket, with dividends taxed at $15$ percent.

a$.$ Compute the amount of the aftertax income from the additional preferred stock if it is purchased. Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.

Aftertax income

b$.$ Compute the aftertax borrowing cost to purchase the additional preferred stock.

Note: 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?

Yes

No

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?