Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend yield
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Question:
Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend yield versus a common stock with no dividend but a 16% capital gain. The corporation's tax rate is 21%. The:
Multiple Choice
- A common stock returns 2.32% less than the preferred.
- B common stock returns 2.60% less than the preferred.
- C returns are equal on an after-tax basis.
- D preferred stock returns 1.90% less than the common.
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