Which One of the Following Statements Is Correct About a Corporation

question 34

Multiple Choice

Which one of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend?

• A) The preferred stock should be selected because its after-tax yield is 0.17% higher.
• B) The preferred stock should be selected because its after-tax yield is 0.80% higher.
• C) The bond should be selected because its after-tax yield is 0.17% lower.
• D)The bond should be selected because its after-tax yield is 1.3% higher.

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Definitions:

Raw Materials

Basic materials and substances used in the initial stages of production or manufacturing.

Month

A unit of time, typically comprising 28 to 31 days, used as a measure for organizing calendar time.

Underapplied Overhead

A situation in cost accounting where the allocated manufacturing overhead cost is less than the actual overhead incurred.

Manufacturing Overhead

All indirect costs associated with manufacturing, including maintenance, utilities, and indirect labor.