Mrs James Plans to Invest in One of Two Investment

question 28

Multiple Choice

Mrs. James plans to invest in one of two investment alternatives having the same risk. Investment 1 has a before-tax return of 10% and the income from investment 1 would be taxed at Mrs. James' 35% regular tax rate. Investment 2 has a before-tax return of 8% and the income from investment 2 would be taxed at a 15% preferential rate. Which of the following statements regarding these investment choices is false?

• A) The after-tax rate of return on investment 1 is 6.5%.
• B) The after-tax rate of return on investment 2 is 6.8%.
• C) Investment 2 bears implicit tax relative to investment 1.
• D) Mrs. James should choose investment 1.

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Definitions:

Inheritance Laws

Legal statutes and regulations governing the distribution of a deceased person’s estate to their heirs and beneficiaries.

Middle East

A region that broadly includes Western Asia and Egypt, known for its historical, political, and cultural significance.

Western Europe

A region encompassing the western part of Europe, often known for its distinct historical and cultural identity.

Proprietorships

A form of business ownership where a single individual owns, manages, and is responsible for all aspects of the business, including its debts and liabilities.