The Ester Municipal Water Utility issued 20-year bonds in the amount of $53 million for several high-priority

Question:

The Ester Municipal Water Utility issued 20-year bonds in the amount of $53 million for several high-priority flood control improvement projects. The bonds carried a 5.38% dividend rate with the dividend payable annually. The U.S. economy was in a recession at that time, so as part of the federal stimulus program, the Utility gets a 35% reimbursement on the dividend it pays.

(a) What is the effective dividend rate that the Utility is paying on the bonds?

(b) What is the total dollar amount the Utility will save in dividends over the life of the bonds?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...