Buggy Whip Manufacturing Company is issuing preferred stock yielding 13%. Selten Corporation is considering buying the...
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%.
Homework Answers
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%
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