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    after tax return on the best investment alternative

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    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?

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    Solution Preview

    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 ...

    Solution Summary

    The after tax return on the best investment alternative is calculated.