Van Dyke Corporation has a corporate tax rate equal to 25%.The company recently purchased preferred stock in another company.The preferred stock has an 8% before-tax yield.What is Van Dyke's after-tax yield on the preferred stock? Assume a 50% dividend exclusion for tax on dividends.(Round your final answer to two decimal places. )

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Quizplus · Accepted Answer

Van Dyke Corporation can exclude 50% of the dividends from taxation. Therefore, only 50% of the 8% yield is taxable. The taxable portion is 4% (0.5 * 8%). After applying the 25% tax rate, the tax on the taxable portion is 1% (0.25 * 4%). The after-tax yield is the original yield minus the tax, which is 8% - 1% = 7.00%.

Van Dyke Corporation Has a Corporate Tax Rate Equal to 25%.The