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

question 102

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%.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 After-tax returns:
• Preferred Stock: 12% - (12% x 35% x 30%) = 10.74%
• Common Stock: 16% - (16% x 35%) = 10.40%

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Definitions:

MTBF Distribution

The probability distribution of time between failures for a repairable system, representing Mean Time Between Failures.

Standard Deviation

A numeric value that represents the extent of spread or variability among a dataset.

Preventive Maintenance

Scheduled maintenance activities designed to prevent equipment failures before they occur, aimed at reducing downtime and increasing reliability.

Breakdown Maintenance

involves repairs or adjustments made after equipment has failed, aiming to restore it to operational condition.