Van Dyke Corporation has a corporate tax rate equal to 30%.The company recently purchased preferred stock in another company.The preferred stock has an 8% before-tax yield.What is Van Dyke's after-tax yield on the preferred stock?

Question

Quizplus · Accepted Answer

The after-tax yield is calculated by multiplying the before-tax yield by (1 - tax rate). So, 8% * (1 - 0.30) = 5.6%. However, since preferred dividends are often subject to a dividends received deduction, the effective tax rate may be lower, leading to a higher after-tax yield. In this case, the correct after-tax yield is 7.28%.

Van Dyke Corporation Has a Corporate Tax Rate Equal to 30%.The