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. 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 dividend of $6.40. The flotation cost on the preferred stock is $6.

a. Compute the aftertax cost of debt. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
b. Compute the aftertax cost of preferred stock. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
c. Based on the facts given above, is the treasurer correct?

a. Compute the after tax cost of debt.

after tax cost of debt = 11% x (1 - tax rate) = 11% x 0.8 = 8.8%

b. Compute the after tax cost of preferred stock.

after tax cost of preferred stock = cost of preferred stock (no taxes are deducted for paying preferred dividends since they are paid in capital)

cost of preferred stocks = $6.40 / ($60 - $6) = $6.40 / $54 = 11.85%

c. Based on the facts given above, is the treasurer correct?

the difference = 11.85% - 8.8% = 3.05%, so the treasurer was right

ans.

heterothermic organisms include those organisms that can switch between homeothermic (having body temperature higher than environment) and poikilothermic (having variation in internal body temperature) strategies.

some migratory birds show heterothermy as they decrease their metabolic rate during cold nights to keep their body temperature low. drop in metabolic rate allows increase in production efficiency of birds that reduces the internal body temperature to make it equal to external cold temperature during cold nights.

thus, the correct answer is 'birds allow their temperature drop in order to increase their production efficiency.'