Referring back to the original information in the previous problem, if the yield on the $100,000 of preferred stock is still 9 percent and the borrowing cost remains 11 percent, but the tax rate is only 15 percent, is this a feasible investment?

Previous Problem

The treasurer of Harmon Bottling Company currently has $100,000 invested in preferred stock yielding 9 percent. He appreciates the tax advantages of preferred stock and is considering buying $100,000 more with borrowed funds. The cost of the borrowed funds is 11 percent. He suggests this proposal to his board of directors.