The treasurer of Scotiabank is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations, she assumes the after-tax cost of debt is at least 3% less than that for preferred stock.

Debt can be issued at a yield of 9.0%, and the corporate tax rate is 35%. Preferred shares will be priced at $56 and pay a dividend of $4.40. The flotation cost on the preferred stock is $4. Don't round intermediate calculations, and round the final answers to 2 decimal places.

a. Compute the after-tax cost of debt.

Aftertax cost of debt_____%

b. Compute the after-tax cost of preferred stock.

Aftertax cost of preferred stock______%

c. Based on the facts given above, is she correct?

Yes or No _____.