Since 70% of the preferred dividends received by a corporation are excluded from taxable income, the component cost of equity for a company that pays half of its earnings out as common dividends and half as preferred dividends should, theoretically, be
Cost of equity = rs

Question

Quizplus · Accepted Answer

The component cost of equity (rs) is typically calculated based on the cost of common equity, not preferred dividends. Preferred dividends affect the cost of preferred stock, not the cost of equity.

Since 70% of the Preferred Dividends Received by a Corporation