Abc corporation has $50,000 which it plans to invest in marketable securities. The corporation is choosing between the following 3 equally risky securities.
Spartan county tax free municipal bonds yielding 8%
ford bonds yielding 11.5%
GE preferred stock with a dividend yield of 12%
ABC's corporate tax rate is 35%. what is the after tax return on the best investment alternative?
If there was no tax on the income the best alternative would have been the GE preferred stock with 12% return, but the presence of taxes makes things different. Consider each of the alternatives one by one.
1. The Spartan County Municipal Bonds:
They offer a 8% return that is tax ...
The after tax return on the best investment alternative is calculated.