What Is the After-Tax Cost of Preferred Stock That Pays

question 64

Multiple Choice

What is the after-tax cost of preferred stock that pays a 12% dividend and sells at par if the firm's tax rate is 35%?

• A) 7.8%
• B) 8.5%
• C) 12.0%
• D) 16.2%

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Definitions:

Schedule E

Schedule E is a form used for tax filing that reports supplemental income and loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests.

Schedule D

A form used with the U.S. federal income tax return to report capital gains and losses from the sale, exchange, or disposition of capital assets.

Mortgage Interest

The interest charged on a loan used to purchase a residence, which can be deductible for taxpayers who itemize deductions on their income tax returns.

Property Taxes

Taxes assessed on real estate by local government, based on the property's assessed value.