The treasurer of Harmon Bottling Company currently has $100,000 invested in preferred stock yielding 9%.

The treasurer of Harmon Bottling Company currently has $100,000 invested in preferred stock yielding 9%.The treasurer of Harmon Bottling Company currently has $100,000 invested in preferred stock yielding 9%. 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%. He suggests this proposal to his board of directors. The directors are somewhat concerned by the fact that the treasurer is paying 2% more for funds than he is earning. The firm is in a 34% tax bracket.