Find the after-tax return to a corporation that buys a share of preferred stock at $50, sells it at year-end at $50, and receives a $5 year-end dividend. The firm is in the 30% tax bracket. (Round your answer to 2 decimal places.)

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Business

Ella

17 April, 04:22

Find the after-tax return to a corporation that buys a share of preferred stock at $50, sells it at year-end at $50, and receives a $5 year-end dividend. The firm is in the 30% tax bracket. (Round your answer to 2 decimal places.)

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Lainey Hines · Answer 1

After tax Return is $3.50

After tax rate of return is 7.00%

Explanation:

Purchase Price = $50

Price at the end of the year = $50

Dividend Received = $5

Return on share = Dividend + Gain on share price

Return on share = $5 + ($50 - $50)

Return on share = $5 + $0

Return on share = $5

After tax return = $5 x (1 - 0.3) = $5 x 0.7 = $3.5

Rate of return on share = (Total return / purchase price) x 100

Rate of return on share = ($3.5 / $50) x 100

Rate of return on share = 7%