A company with a 15% tax rate buys preferred stock in another company.The preferred stock has a before-tax yield of 7.50%.Assume a 70% dividend exclusion for tax on dividends.What is the preferred stock's after-tax return? (Round your final answer to two decimal places. )

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Quizplus · Accepted Answer

11ea856c_8bff_f154_9aec_7f9fd9c1611d_TB1222_00 If a company buys preferred stock in another company,70% of the dividends are excluded from taxes.Therefore,the after-tax return will be:
After-tax dividend yield = Preferred dividend rate [1 - (1 - Div exclusion%)(T)]
After-tax dividend yield = 7.16%

A Company with a 15% Tax Rate Buys Preferred Stock