Since 70% of the Preferred Dividends Received by a Corporation

question 22

True/False

Since 70% of the preferred dividends received by a corporation are excluded from taxable income,the component cost of equity for a company that pays half of its earnings out as common dividends and half as preferred dividends should,theoretically,be
Cost of equity = r_s(0.30)(0.50)+ r_ps(1 − T)(0.70)(0.50).

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Definitions:

Section 179 Expense

A section of the IRS tax code allowing businesses to deduct the full purchase price of qualifying equipment and/or software within a tax year.

Separately Stated

Items on a tax return or financial statement that are listed individually to ensure proper treatment under tax laws or accounting rules.

Ordinary Income

Income earned from providing services or the sale of goods, as opposed to capital gains or investment income, taxed at standard rates.

Section 179 Expense

A tax deduction that allows businesses to deduct the full purchase price of qualifying equipment and/or software within a tax year.