Question

a corporation with a marginal tax rate 34 percent would receive what after tax dividend yeild on a 12 percent coupon rate preferred stock bought at par asuming a 70 percent dividend exclusion

Answer 1

Solution:
	After tax dividend yield	10.78%
Working Notes:
	70 percent dividend exclusion means , out of 12% coupon received [70% x 12% = 8.4%] tax is not paid and deducted before to calculate taxation of dividend .
	No tax portion of coupon = 12% x 0.70 = 8.40%
	Taxable portion = coupon rate x (1-exclusion rate)
	Taxable portion = 12% x (1-0.70)
	Taxable portion = 3.60%
Hence	Net of tax return (from taxable portion) = Taxable portion x (1-tax rate)
	Net of tax return (from taxable portion) = 3.60% x (1-0.34)
	Net of tax return (from taxable portion) = 2.376%
	After tax dividend yield = tax free portion + Net of tax return (from taxable portion)
	After tax dividend yield = 8.40% + 2.376%
	After tax dividend yield =10.776%
	After tax dividend yield =10.78%
Please feel free to ask if anything about above solution in comment section of the question.