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:

Benefit

Part of an employee’s compensation in addition to wages and salaries.

Competitive Advantage

The attribute that allows an organization to outperform its competition, achieved through offering higher value to consumers or producing goods or services at a lower cost.

Relative

An item or factor considered in relation or in proportion to something else.

Not Absolute

Suggesting that something is subject to change or can be viewed in different ways, not fixed or definite.