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 that pays an 8% yield. The company has a marginal tax rate of 34% which must be taken into consideration and high yield dividend stocks must be held for a minimum of 46 days in order for 70% tax exemption to apply to the dividends earned.
Requirement:
Question 1: Calculate the Dividend Capture Yield assuming the stock is held for 60 days.
Question 2: 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
Question 3: What type of risks should the business consider before making this investment? Are there any possibilities to increase the return to offset any potential risks?
Note: Provide support for your underlying principle.