A Company with a 15% Tax Rate Buys Preferred Stock

question 52

Multiple Choice

A company with a 15% tax rate buys preferred stock in another company.The preferred stock has a before-tax yield of 8%.What is the preferred stock's after-tax return?

• A)6.90%
• B)7.26%
• C)7.64%
• D)8.02%
• E)8.42%

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Definitions:

Accounts Receivable Turnover

A financial metric that measures how many times a company can turn its accounts receivable into cash within a given period.

Adjusting Entry

A journal entry made at the end of an accounting period to update account balances before preparing financial statements, ensuring they reflect the true financial position.

Financial Statements

Financial reports that summarize the effects of events on a business.

Interest Note

A financial instrument that serves as a formal promise to pay interest in addition to the principal amount borrowed.