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    After tax return

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    The XYZ Corporation has $100,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Greenville County tax-free municipal bonds yielding 7 percent; AB corp. bonds yielding 11.5 percent; XZ corp. preferred stock with a dividend yield of 10 percent. XYZ's corporate tax rate is 35 percent. What is the after-tax return on the best investment alternative?

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    Solution Preview

    Greenville County tax-free municipal bonds yielding 7 percent

    Since these are tax-free the after tax yield is the same as 7%

    AB corp. bonds ...

    Solution Summary

    The solution explains how to calculate the after tax return and choose the best alternative