Allen Corporation Can (1)build a New Plant Which Should Generate

question 26

Multiple Choice

Allen Corporation can (1) build a new plant which should generate a before-tax return of 11 percent,or (2) invest the same funds in the preferred stock of FPL,which should provide Allen with a before-tax return of 9%,all in the form of dividends.Assume that Allen's marginal tax rate is 25 percent,and that 70 percent of dividends received are excluded from taxable income.If the plant project is divisible into small increments,and if the two investments are equally risky,what combination of these two possibilities will maximize Allen's effective return on the money invested?

• A) All in the plant project.
• B) All in FPL preferred stock.
• C) 60% in the project;40% in FPL.
• D) 60% in FPL;40% in the project.
• E) 50% in each.

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Definitions:

Agreeability

A personality trait characterized by cooperativeness, friendliness, and compassion towards others.

Five-Factor Model

A model that describes human personality using five broad dimensions: openness, conscientiousness, extraversion, agreeableness, and neuroticism.

Leadership Emergence

The process through which someone becomes recognized as a leader by others within a group or organization, often due to their actions, characteristics, or abilities.

Followership

The behaviors and actions of individuals who follow or support a leader, contributing to the achievement of the group’s objectives.