Question

rd.com/ultra/courses/ 31387 1/d/outline Remaining Time: 2 hours, 23 minutes, 41 seconds. s Question Completion Status: QUESTION 15 anville Co. recently purchased several shares of Kalvana Electroscs preferred stock The preferred stock has a be ompany's tax rate is 40%, what is Granville Co's after-tax yield on the 0 a 795% b.757% с, 719% e) d. 649% e, 6 83% QUESTION 16 Last year Besset Company's operations provided a ucgaize cash tlow yet the cash shown on its balance sheet inczrased Which of the follow statements could explain the iscrease in cash, assuming the company's financial statements mere prepared under generally accepted account GAAP)? a The company repurchased some of its common stock ob. The company dramatically ancreased ts capital expenditur C. The company retised a large amouen of its long-tesm debt tungamentalso..doc

Answer 1

Ans : B (7.57%)

Preferred dividend rate = 8.6%

Tax rate = 40%

Dividend exclusion % = 70%

If a company buys Preferred stock in another company, 70% of the dividends are excluded from taxes.

After tax return will be,

After tax yield = Preferred dividend rate [ 1 - (1 - Dividend exclusion%) Tax rate]

= 8.6 [ 1 - ( 1 - 0.7) 0.4]

= 7.568 = 7.57%