Buggy Whip Manufacturing Company is issuing preferred stock yielding 13%. Selten Corporation is considering buying the stock. Assume that Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 30%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends is 15%.
After-tax preferred yield = Before-tax preferred stock yield x [1 - (Tax rate)(0.30)]
= 13% x [1 - (0.15)(0.30)] = 13% x 0.955 = 12.415%
Buggy Whip Manufacturing Company is issuing preferred stock yielding 13%. Selten Corporation is considering buying the...
The treasurer of Kelly Bottling Company (a corporation) currently has $130,000 invested in preferred stock yielding 7 percent. He appreciates the tax advantages of preferred stock and is considering buying $130,000 more with borrowed funds. The cost of the borrowed funds is 12 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 5 percent more for funds than the company will be earning on the investment....
The treasurer of Kelly Bottling Company (a corporation) currently has $340,000 invested in preferred stock yielding 6 percent. He appreciates the tax advantages of preferred stock and is considering buying $340,000 more with borrowed funds. The cost of the borrowed funds is 14 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 8 percent more for funds than the company will be earning on the investment....
The treasurer of Kelly Bottling Company (a corporation) currently has $340,000 invested in preferred stock yielding 6 percent. He appreciates the tax advantages of preferred stock and is considering buying $340,000 more with borrowed funds. The cost of the borrowed funds is 14 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 8 percent more for funds than the company will be earning on the investment....
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The treasurer of Kelly Bottling Company (a corporation) currently has $310,000 invested in preferred stock yielding 6 percent. He appreciates the tax advantages of preferred stock and is considering buying $310,000 more with borrowed funds. The cost of the borrowed funds is 11 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 5 percent more for funds than the company will be earning on the investment....
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