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Problem: A small business is considering investing in high yield dividend stocks. After careful consideration, one stock stands out as being the most attractive investment which pays an 8% yield. The company has marginal tax rate of 34% which must be taken in consideration and high yield dividend stocks should be held for a minimum of 46 days in order for 70% tax exemption to apply to the dividends earned.

a. Compute the Dividend Capture Yield assuming the stock is held for 60 days.

b. How much would Commercial Paper after-tax yield have to be to earn the equivalent yield of the high yield dividend stock? Please show all work

c. What kind of risks should the business consider before making this investment? Are there any possibilities to raise the return to offset any potential risks?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94223

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