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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% ==

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% ==

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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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