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The treasurer of Riley Coal Co . is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations,
The treasurer of Riley Coal Co is asked to compute the cost of
fixed income securities for her corporation. Even before making the
calculations, she assumes the aftertax cost of debt is at least
percent less than that for preferred stock.
Debt can be issued at a yield of percent, and the corporate
tax rate is percent. Preferred stock will be priced at $ and
pay a dividend of $ The flotation cost on the preferred stock
is $aCompute the aftertax cost of
debt.Do not round intermediate calculations. Input
your answer as a percent rounded to decimal
places.
bCompute the aftertax cost of preferred
stock.Do not round intermediate calculations. Input
your answer as a percent rounded to decimal places.cBased on the facts given above, is the
treasurer correct?Yes, the treasurer is correct.No the treasurer is incorrect.
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