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

question 7

Multiple Choice

Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend yield 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 the preferred.
• B) preferred stock returns 0.34% more than the common.
• C) common stock returns 2.32% more than the preferred.
• D) returns are equal on an after-tax basis.

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Definitions:

Axial Skeleton

The central part of the skeleton, comprising the skull, spine, ribs, and sternum, responsible for supporting and protecting vital organs.

Vertebral Column

The spine or backbone, consisting of a series of vertebrae that encloses and protects the spinal cord.

Rib Cage

The set of bones around the chest that protects the heart, lungs, and other organs within the thorax.

Lordosis

The inward curvature of a portion of the lumbar and cervical vertebral column, which can become exaggerated in certain medical conditions.