Before tax dividend yield

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• After Tax Yield and Tax Liability

  Dividends received - 70% of the dividend amount is excluded and tax is to be paid only on the 30% Interest is fully deducted from earnings before tax.

• After tax return

  Greenville County tax-free municipal bonds yielding 7 percent Since these are tax-free the after tax yield is the same as 7% AB corp. bonds yielding 11.5 percent The after tax yield is calculated as before tax yield X (1-tax rate) After tax

• After- tax returns

  Tax free municipal bonds - Since these are tax free the after tax yield is the same as before tax yield. The after tax return is 6% 2.

• Tax Liability and Marginal Tax Rate

  We calculate the after tax yield on both the bonds For California Bonds after tax yield = 7% (it is tax exempt so the yield is the same) ExxonMobil, the after tax yield is before tax yield X (1-tax rate) = 10%X(1-0.25) = 7.5% We choose ExxonMobil as

• Using the WACC equation

  If the firm's tax rate is 30% what is the before tax yield on this company's long term debt?

• after-tax yields

  yield 0 3% 0 1% 0 Expected dividend yield 0 0 5% 0% 0 Total expected yield 2% 3% 5% 1% 6% Tax implication of total expected yield Not taxable, gains will only be taxed when realized Tax exempt Taxable at a rate of 15%.

• Inquiry about Bonds and Stocks

  The yield is given as 7% and the tax rate is 34%. After tax yield = Before tax yield X (1-tax rate) = 7% X (1-0.34) = 4.62% The cost of the bond is 4.62%. B. We use the constat growth model.

• Bonds: Cost of Capital

  Tax rate = 34% = 0.34 Before-tax yield to maturity = 12.1% (also called cost of debt) After-tax yield to maturity = (1 ? T)*(Before-tax yield) = (1 ? 0.34)*(0.121) = 0.07986 = 7.99% Good Luck! The cost of capital for bonds are examined.

• Stock Dividend

  Preferred stock dividends are not a tax deductible expense for the firm. 7. One measure of the safety of a preferred stock's dividend is the ratio of dividends to earnings before interest and taxes. 8.