Homework Answers
The total before-tax income is $3. After the 70% exclusion for preferred stock dividends, the taxable income is: $3 × 30% = $0.90
Income tax in the 30% tax bracket: $0.90 × 30% = $0.27
After-tax income = $3 - $0.27 = $2.73
After-tax rate of return = $2.73 / $32 = 0.0853 or 8.53%
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