9. Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 21% tax bracket. • Answer: The after-tax return is calculated as follows: • Dividend received = $4 • Tax on dividend = $4 \times 21% = $0.84 •After-tax dividend = $4 - $0.84 = $3.16 • Return = After tax dividend - Purchase price -: -: = $3.16 $40 = 0.079 or 7.9% ==

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter15: Dividend Policy
Section: Chapter Questions
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9. Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells
it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 21% tax
bracket.
• Answer:
The after-tax return is calculated as follows:
• Dividend received
=
$4
• Tax on dividend =
$4 \times 21% = $0.84
•After-tax dividend = $4 - $0.84 = $3.16
• Return = After tax dividend - Purchase price
-:
-:
= $3.16 $40 = 0.079 or 7.9%
==
Transcribed Image Text:9. Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 21% tax bracket. • Answer: The after-tax return is calculated as follows: • Dividend received = $4 • Tax on dividend = $4 \times 21% = $0.84 •After-tax dividend = $4 - $0.84 = $3.16 • Return = After tax dividend - Purchase price -: -: = $3.16 $40 = 0.079 or 7.9% ==
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