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:

Internal Control System

A process implemented by a company to provide reasonable assurance regarding the achievement of objectives related to operations, reporting, and compliance.

Control Activities

Policies, procedures, and mechanisms implemented by an organization to prevent or detect errors or frauds, ensuring the integrity of financial reporting and compliance with laws and regulations.

Risk Assessment

The process of identifying, evaluating, and estimating the levels of risk involved in a situation, followed by the coordination and economical application of resources to minimize, monitor, and control the probability and impact of unfortunate events.

Idle Cash

Cash that is not currently employed in any investment or operation, therefore not earning any return or interest.