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Consider the three stocks in the following table. Pt represents price at time t, and Qt represents s

Subject

Business

Type

Homework

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Problem 2-32
Find the after-tax return to a corporation that buys a share of preferred stock
at $32, sells it at year-end at $32, and receives a $4 year-end dividend. The
firm is in the 30% tax bracket. (Round your answer to 2 decimal places.)
After-tax rate of return
%
Explanation:
The total before-tax income is $4. The corporations may exclude 70% of dividends received from domestic corporations in the computation of
their taxable income; the taxable income is therefore: $4 × 30% = $1.2.
Income tax in the 30% tax bracket: $1.2 × 30% = $0.36
After-tax income = $4 – $0.36 = $3.64
After-tax rate of return = $3.64/$32 = 0.1138 or 11.38%
11.38 ± 1%

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