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% ==
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% ==
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 5P
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