A corporation recently purchased some preferred stock that has a before-tax yield of 10.00%. The company has a tax rate of 25%. What is the after-taxreturn on the preferred stock? Assume a 50% dividend exclusion for taxes on dividends. (Round your final answer to two decimal places.)Ⓒa. 6.25%b. 8.75%c.2.50%d. 7.50%e. 5.00%

Before-tax dividend yield = 10.00%50% dividend exclusion for taxes on dividends. This means that…

Answered: A corporation recently purchased some…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter10: Stockholder's Equity

Section: Chapter Questions

Problem 87PSA

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You buy stock for $30 per share and sell it for $33 per share after holding it for slightly after a yer and collecting a $0.75 per share dividend. Youre ordinary income tax rate is 28% and your capital gains tax rate is 20%. Youre after tax return rate is? A. 8.00% B. 10.25% C. 12.5% D. 9.8% E.8.75%
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 $165, 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 10% on dividends and 5% on capital gains? b. Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity.
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Find the after-tax return to a corporation that buys a share of preferred stock at $58, sells it at year-end at $58, and receives a $4 year-end dividend. The firm is in the 21% tax bracket. (Round your answer to 2 decimal places.)
chuss Inc. can sell preferred shares for $82 with an estimated flotation cost of $2.00. The preferred stock is anticipated to pay $14 per share in dividends. a. Compute the cost of preferred stock for Schuss Inc. (Round the final answer to 2 decimal places.) Cost of preferred stock % b. Do we need to make a tax adjustment for the issuing firm? multiple choice Yes No
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