Maurice Is Currently Considering Investing in a High Dividend Yield

question 36

Essay

Maurice is currently considering investing in a high dividend yield stock with no growth potential that pays a 6 percent dividend yield or bonds issued by the Coca-Cola Company that pay 8 percent.If Maurice's ordinary tax rate is 25 percent and his dividend tax rate is 15 percent, which investment should he choose? Which investment should he choose if his ordinary tax rate is 30 percent? At what ordinary tax rate would he be indifferent between the stock or the bond? What strategy is this decision based upon?

---

Definitions:

Operational Planning

The process of planning short-term actions and strategies to achieve company goals and objectives.

Profit Objectives

Financial goals set by a business aiming to achieve a specific amount of profit over a certain period of time.

Short-Term

Relating to financial instruments or borrowing with a maturity of one year or less, or to activities or planning over a similar timeframe.

Profit Projections

Estimated calculations predicting the future profitability of a business over a specific period.