Lovell Co.purchased preferred stock in another company.The preferred stock's before-tax yield was 9.00%.The corporate tax rate is 40%.What is the after-tax return on the preferred stock,assuming a 70% dividend exclusion? (Round your final answer to two decimal places. )

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Quizplus · Accepted Answer

11ea856c_8bff_ca43_9aec_9160dd7f30ab_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 = 7.92%

Lovell CoPurchased Preferred Stock in Another Company