The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even before...

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 2 percent less than that for preferred stock.

Based on the facts below, is she correct?

Debt can be issued at a yield of 10.6 percent, and the corporate tax rate is

35 percent. Preferred stock will be priced at $50 and pay a dividend of $4.40.

The flotation cost on the preferred stock is $2.

Need soultion for :

1. Aftertax Cost of Debt ( show work)

2. Aftertax Cost of Preferred Stock ( show work)

3. Based on the facts above, is the treasurer correct?