Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend? a. The stock is preferred by approximately .17%. b. The stock is preferred by approximately .80%. c. The bond is preferred by approximately 1.30%. d. The after-tax yields are identical on each.

Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend? a. The stock is preferred by approximately .17%. b. The stock is preferred by approximately .80%. c. The bond is preferred by approximately 1.30%. d. The after-tax yields are identical on each.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 64P: Albion Inc. provided the following information for its most recent year of operations. The tax rate...

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Albion Inc. provided the following information for its most recent year of operations. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders equity, (d) earnings per share, (e) price-earnings ratio, (f) dividend yield, and (g) dividend payout ratio. 2. CONCEPTUAL CONNECTION If you were considering purchasing stock in Albion, which of the above ratios would be of most interest to you? Explain.
The Shrieves Corporation has $10,000 that it plans to invest in marketablesecurities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferredstock, with a dividend yield of 6%. The corporate tax rate is 35%, and 70% ofthe dividends received are tax exempt. Find the after-tax rates of return on allthree securities.
A corporation has $5,000,000 of 8 percent preferred stock outstanding and a 21 percent tax rate. The after-tax cost of the preferred stock is ________.
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Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 8.9 percent, and the pretax cost of debt is 8.1 percent. What is the company's WACC if the applicable tax rate is 35 percent? Answer: ?
Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 8.9 percent, and the pretax cost of debt is 8.1 percent. What is the company's WACC if the applicable tax rate is 35 percent?
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Consider a company with the following capital structure and subject to a company tax rate of 30%: Market Value Market Yield (before-tax) Ordinary shares $2,000,000 16% Preference shares $1,000,000 15% Bonds $2,000,000 12% Calculate the after-tax weighted average cost of capital for the company Explain why the market yields for ordinary shares and preference shares do not need to be adjusted for taxation
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