Cost of debt and preferred stock

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The Treasurer of BioScience, Inc., is asked to compute the cost of fixed income securities for her corporation. Even before making calculations, she assumes the after-tax cost of debt is at least 2 percent less than that for preferred stock. Based on following facts, is she correct?

Debt can be issued at a yield of 11 percent, and the corporate tax rate is 30 percent. Preferred stock will be priced at $50 and pays a dividend of $4.80. The floatation cost on the preferred stock is $2.10.

Reference no: EM1354332

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