Granville Co.recently purchased several shares of Kalvaria Electronics' preferred stock.The preferred stock has a before-tax yield of 8.60%.If the company's tax rate is 15%,what is Granville Co.'s after-tax yield on the preferred stock? Assume a 70% dividend exclusion for tax on dividends.(Round your final answer to two decimal places. )

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Quizplus · Accepted Answer

11ea856c_8c00_3f76_9aec_f9481de7bc6b_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 = 8.21%