Regarding the tax treatment of payments to securities holders, it is true that _
ID: 2773145 • Letter: R
Question
Regarding the tax treatment of payments to securities holders, it is true that _______________, while ____________________.
interest and preferred stock dividends are tax-deductible; while common stock dividends are not tax-deductible
common stock dividends and preferred stock dividends are tax-deductible; while interest is not tax-deductible
interest and preferred stock dividends are not tax-deductible; while common stock dividends are tax-deductible
common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible
A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900. The yield to maturity is:
10 percent
cannot be determined
less than 10 percent
greater than 10 percent
XYZ has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. XYZ's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity?
8.89%
13%
12.3%
14.65%
1.interest and preferred stock dividends are tax-deductible; while common stock dividends are not tax-deductible
2.common stock dividends and preferred stock dividends are tax-deductible; while interest is not tax-deductible
3.interest and preferred stock dividends are not tax-deductible; while common stock dividends are tax-deductible
4.common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible
A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900. The yield to maturity is:
1.10 percent
2.cannot be determined
3.less than 10 percent
4.greater than 10 percent
XYZ has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. XYZ's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity?
1.8.89%
2.13%
3.12.3%
4.14.65%
Explanation / Answer
1) Correct answer is (4) common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible