Because 50% of the preferred dividends received by a corporation are excluded from taxable income, the component cost of equity for a company that 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)(0.50)(0.50).
Answer the following statement true (T) or false (F)
False
Rationale: The preferred dividend exclusion is a benefit to the holder of the preferred, not the issuer; hence, this statement is not true. It actually is just nonsense anyway!
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Answer the following statement true (T) or false (F)