Arvo Corporation is trying to choose between three alternative investments. The three securities that the company is considering are as follows: Tax-free municipal bonds with a return of 8.80% Wooli Corporation bonds with a return of 11.75% CFI Corp. preferred stock with a return of 9.80% The company's tax rate is 35.00%. What is the after-tax return on the best investment alternative? Assume a 70.00% dividend exclusion for tax on dividends. a. 8.800% b. 8.448% c. 9.504% d. 9.064% e. 8.624%

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter2: Financial Statements, Cash Flow,and Taxes
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Arvo Corporation is trying to choose between three alternative
investments. The three securities that the company is considering are as
follows:
Tax-free municipal bonds with a return of 8.80%
Wooli Corporation bonds with a return of 11.75%
CFI Corp. preferred stock with a return of 9.80%
The company's tax rate is 35.00%. What is the after-tax return on the best
investment alternative? Assume a 70.00% dividend exclusion for tax on
dividends.
a. 8.800%
b. 8.448%
c. 9.504%
d. 9.064%
e. 8.624%
Transcribed Image Text:Arvo Corporation is trying to choose between three alternative investments. The three securities that the company is considering are as follows: Tax-free municipal bonds with a return of 8.80% Wooli Corporation bonds with a return of 11.75% CFI Corp. preferred stock with a return of 9.80% The company's tax rate is 35.00%. What is the after-tax return on the best investment alternative? Assume a 70.00% dividend exclusion for tax on dividends. a. 8.800% b. 8.448% c. 9.504% d. 9.064% e. 8.624%
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