Granville Co.recently purchased several shares of Kalvaria Electronics' preferred stock.The preferred stock has a before-tax yield of 6.10%.If the company's tax rate is 25%,what is Granville Co.'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. )

Question

Quizplus · Accepted Answer

First, we need to calculate the taxable yield by subtracting the dividend exclusion:

Taxable yield = 6.10% x (1 - 50%) = 3.05%

Then, we can calculate the after-tax yield using the following formula:

After-tax yield = Taxable yield x (1 - Tax rate)

After-tax yield = 3.05% x (1 - 25%) = 2.29%

Finally, we need to add the dividend exclusion back to the after-tax yield:

After-tax yield with dividend exclusion = 2.29% + 50% = 3.44%

Therefore, Granville Co.'s after-tax yield on the preferred stock is 3.44%, which is closest to option B (5.34%).