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 3 percent less than that for preferred stock Based on the following facts, is she correct Debt can be iss...

Riley Coal Inc Aftertax cost of de ...

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

Question:

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 is at least 3 percent less than that for preferred stock. Based on the following facts, is she correct?
Debt can be issued at a yield of 11.0 percent, and the corporate tax rate is 20 percent. Preferred stock will be priced at $60 and pay a of $6.40. The flotation cost on the preferred stock is $6.

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...