A corporation with a marginal tax rate of 34 percent would receive what after-tax dividend yield on a 12 percent coupon rate preferred stock bought at par,assuming a 70 percent dividend exclusion?

Question

Quizplus · Accepted Answer

The after-tax dividend yield can be calculated as:
After-tax dividend yield = Coupon rate x (1 - Marginal tax rate) x (1 - Dividend exclusion rate)
= 12% x (1 - 0.34) x (1 - 0.7)
= 10.78% 
Therefore, the after-tax dividend yield on the preferred stock is 10.78%. The correct answer is B.

A Corporation with a Marginal Tax Rate of 34 Percent