A Corporation Can Earn 7

question 66

Multiple Choice

A corporation can earn 7.50% if it invests in municipal bonds.The corporation can also earn 8.20% (before-tax) by investing in preferred stock.Assume that the two investments have equal risk.What is the break-even corporate tax rate that makes the corporation indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends.(Do not round your intermediate answer and round your final answer to two decimal places. )

• A) 28.74%
• B) 31.02%
• C) 28.46%
• D) 27.89%
• E) 35.28%

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Definitions:

Superego

In psychoanalytic theory, the part of the personality that represents moral standards and ideals, acting as a conscience.

Moral Guardian

An individual or entity that promotes and enforces traditional ethical standards and values within a community or society.

Freud

Sigmund Freud, an Austrian neurologist who founded psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Reality Principle

Principle by which the ego functions; the satisfaction of the demands of the id only when negative consequences will not result.