The managers at Alpha Corp. are closely observing trends in the industry. They are trying to identify factors that might have a
1 answer:
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Answer: (a) 6%
(b) 10.61%
(c) Yes
Explanation:
a) After tax cost of debt = Yield (1- tax)
= 8 ( 1 - 0.25)
= 8 × 0.75
= 6%
b)
= 0.1061 or 10.61%
Note: Cost of preferred stock is not tax deductible
c),Yes the treasurer is correct ,The cost of debt is 5% less than cost of preferred stock [10.61 - 6 = 4.61%]