None 9. Find the after-tax return to a corporation that buys a share of preferred stock at $40, sellsit at year-end at $40, and receives a $4 year-end dividend. The firm is in the 21% taxbracket.• 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%==

Step 1: Calculate the total income:The corporation buys the stock at $40 and sells it at $40, so…

Answered: 9. Find the after-tax return to a…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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Albion Inc. provided the following information for its most recent year of operations. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders equity, (d) earnings per share, (e) price-earnings ratio, (f) dividend yield, and (g) dividend payout ratio. 2. CONCEPTUAL CONNECTION If you were considering purchasing stock in Albion, which of the above ratios would be of most interest to you? Explain.
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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The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Stock Expected Dividend Expected Capital Gain A $0 $10 B 5 5 C 10 0 Required: a. If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? b. Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an after-tax return of 8%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. Req A Req B If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective…

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