Since 70 percent of preferred dividends received by a corporation is excluded from taxable income, the component cost of equity for a company which pays half of its earnings out as common dividends and half as preferred dividends should, theoretically, be

Cost of equity = rs (0.30) (0.50) + rps (1 - T) (0.70) (0.50).

a. True

b. False

Question

Gemma Petty

Business

28 October, 12:20

Since 70 percent of preferred dividends received by a corporation is excluded from taxable income, the component cost of equity for a company which pays half of its earnings out as common dividends and half as preferred dividends should, theoretically, be

Cost of equity = rs (0.30) (0.50) + rps (1 - T) (0.70) (0.50).

a. True

b. False

+3

Answers (1)

Know the Answer?

Derick Watkins · Answer 1

The answer is False

Explanation:

Since the 70 percent of preferred dividends received by a company is excluded from taxable income, the component cost of equity for a corporation which pays half of its revenue out as a common dividends and half as preferred dividends should, technically be.