Since Part of Preference Dividends Received by a Corporation Is

question 2

True/False

Since part of preference dividends received by a corporation is excluded from taxable income, the component cost of equity for a company which pays half of its earnings out as ordinary dividends and half as preference dividends should, theoretically, be
Cost of equity = rs(0.30)(0.50) + rs(1 - T)(0.70)(0.50).

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Definitions:

Premium

An amount paid in excess of the nominal or face value, often in relation to insurance or bonds.

Tax Deductible

Expenses or payments that can be subtracted from gross income to reduce the amount of income subject to taxation.

Term Bonds

Bonds that have a fixed maturity date on which the principal amount is due to be paid back to investors in full.

Serial Bonds

Bonds issued by a corporation or government that are scheduled for repayment at a series of future dates.