Compare the After-Tax Returns for a Corporation That Invests in Preferred

question 16

Multiple Choice

Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend versus a common stock with no dividend but a 16% capital gain.The corporation's tax rate is 35%.Assume 30% tax rate on dividends.The:

• A)common stock returns 2.60% more than preferred.
• B)preferred stock returns 0.34% more than common.
• C)common stock returns 2.32% more than preferred.
• D)returns are equal on an after-tax basis.

---

Definitions:

Hierarchies

Systems or organizations in which members are ranked one above the other according to status or authority.

Free Market System

An economic system based on supply and demand with minimal government intervention, where prices for goods and services are determined freely by the open market.

Cluster

A group of similar things or people positioned or occurring closely together, often used to refer to a statistical analysis method that identifies groups of similar data points.

Wants and Needs

Desires (wants) are wishes or aspirations not necessary for survival, whereas needs are essential for basic human survival.