Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either
Posted on November 13, 2008 by admin
diet4evr asked:
Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation which pays a 6% dividend? A) The stock is preferred by approximately .17%.
B) The stock is preferred by approximately .80%.
C) The bond is preferred by approximately 1.30%.
D) The after-tax yields are identical on each.
Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation which pays a 6% dividend? A) The stock is preferred by approximately .17%.
B) The stock is preferred by approximately .80%.
C) The bond is preferred by approximately 1.30%.
D) The after-tax yields are identical on each.
B) The stock is preferred by approximately .80%.
I would say its B, because the dividends arent taxable to the corporation on the stock. Since the corporation is investing in the bond, and not issuing it, the interest is taxable.