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

question 26

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.

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Definitions:

Society's Resources

The assets, both natural and human-made, available to a society for producing goods and services.

Production Possibilities Curve

A curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors.

Slope Southeast

Directionally indicates a downward and to the right trajectory on a graph, often used in economics to describe certain types of curves like the demand curve.

Production Possibilities

A concept in economics that describes the maximum output combinations of goods or services an economy can achieve when all resources are fully and efficiently utilized.