Allen Corporation Can (1)build a New Plant That Should Generate

question 19

Multiple Choice

Allen Corporation can (1) build a new plant that should generate a before-tax return of 11%,or (2) invest the same funds in the preferred stock of Florida Power & Light (FPL) ,which should provide Allen with a before-tax return of 9%,all in the form of dividends.Assume that Allen's marginal tax rate is 25%,and that 70% of dividends received are excluded from taxable income.If the plant project is divisible into small increments,and if the two investments are equally risky,what combination of these two possibilities will maximize Allen's effective return on the money invested?

• A)All in the plant project.
• B)All in FPL preferred stock.
• C)60% in the project; 40% in FPL.
• D)60% in FPL; 40% in the project.
• E)50% in each.

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Definitions:

Frequent Voiding

The need to urinate more often than usual, which can be a symptom of various medical conditions or a result of fluid intake.

Caffeinated Beverages

Drinks containing caffeine, a stimulant that can improve alertness and energy levels.

Fecal Impaction

A mass or collection of hardened, putty-like feces in the folds of the rectum

Bowel Movement

The act of excreting waste from the digestive tract through the rectum.