Lovell Co.purchased preferred stock in another company.The preferred stock's before-tax yield was 6.60%.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. )

Question

Quizplus · Accepted Answer

The after-tax return is calculated by considering the dividend exclusion and the tax rate. The taxable portion of the yield is 30% (100% - 70% exclusion), so the tax is 6.60% * 30% * 40% = 0.792%. The after-tax return is 6.60% - 0.792% = 5.81%.

Lovell CoPurchased Preferred Stock in Another Company