The treasurer of Sutton Security Systems 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 $2$ percent less than that for preferred stock.

Debt can be issued at a yield of $10\mathrm{.}6$ percent, and the corporate tax rate is $35$ percent. Preferred shares will be priced at $$74$ and pay a

dividend of $$6\mathrm{.}00.$ The flotation cost on the preferred stock is $$5.($Do not round Intermedlate colculatlons. Round the flnal answers

to $2$ decimol places.$)$

a$.$ Compute the aftertax cost of debt.

Aftertax cost of debt

$\%$

b$.$ Compute the aftertax cost of preferred stock.

Aftertax cost of preferred stock

$\%$

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

No

Yes