Lovell Co.purchased preferred stock in another company.The preferred stock's before-tax yield was 5.60%.The corporate tax rate is 25%.What is the after-tax return on the preferred stock,assuming a 50% dividend exclusion? (Round your final answer to two decimal places. )

Question

Quizplus · Accepted Answer

The after-tax return on the preferred stock can be calculated using the following formula:

After-tax return = Before-tax yield × (1 − Corporate tax rate) × (1 − Dividend exclusion rate)

Plugging in the given values, we get:

After-tax return = 5.60% × (1 − 0.25) × (1 − 0.50) = 4.90%

Therefore, the answer is choice A (4.90%).

Lovell CoPurchased Preferred Stock in Another Company