Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 17, Problem 17P
Summary Introduction
To determine: The option that should be selected by Omega Corporation on the basis of the after-tax returns from the ones given.
Introduction:
A rate that shows the net profit or loss on the investment of an investor over a particular time period is termed as the rate of return.
After-tax benefits:
These are the deductions to which an individual is eligible for after income tax is calculated.
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The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President
of Finance is considering three investments: (a) Treasury bonds at a 6 percent yield; (b) corporate bonds at a 11 percent yield; or (c)
preferred stock at an 8 percent yield, Omega Corporation is in a 40 percent tax bracket and the tax rate on dividends is 10 percent.
a-1. Compute the aftertax yields for the three investment options.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.
a. Treasury bonds
b. Corporate bonds
c. Preferred stock
Treasury bonds
Aftertax yields
3.60%
a-2. Which one of the three investments should she select based on the aftertax yields?
Preferred stock
Corporate bond
%
The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President
of Finance is considering three investments: (a) Treasury bonds at a 10 percent yield; (b) corporate bonds at a 13 percent yield; or (c)
preferred stock at an 11 percent yield. Omega Corporation is in a 35 percent tax bracket and the tax rate on dividends is 20 percent.
a-1. Compute the aftertax yields for the three investment options.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.
Answer is complete but not entirely correct.
Aftertax yields
a. Treasury bonds
b. Corporate bonds
c. Preferred stock
6.50 %
8.45✔ %
10.23 X %
a-2. Which one of the three investments should she select based on the aftertax yields?
Preferred stock
O Treasury bonds
O Corporate bond
i need the answer quickly
Chapter 17 Solutions
Foundations of Financial Management
Ch. 17 - Prob. 1DQCh. 17 - Prob. 2DQCh. 17 - Prob. 3DQCh. 17 - Prob. 4DQCh. 17 - Prob. 5DQCh. 17 - Prob. 6DQCh. 17 - Prob. 7DQCh. 17 - Prob. 8DQCh. 17 - Prob. 9DQCh. 17 - Why is the cumulative feature of preferred stock...
Ch. 17 - A small amount of preferred stock is...Ch. 17 - Prob. 12DQCh. 17 - Prob. 13DQCh. 17 - Prob. 1PCh. 17 - Time Watch Co. has 46 million in earnings and is...Ch. 17 - Prob. 3PCh. 17 - Prob. 4PCh. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Prob. 7PCh. 17 - Prob. 8PCh. 17 - Prob. 9PCh. 17 - Prob. 10PCh. 17 - Prob. 11PCh. 17 - Boles Bottling Co. has issued rights to its...Ch. 17 - Prob. 13PCh. 17 - Prob. 14PCh. 17 - Prob. 15PCh. 17 - Prob. 16PCh. 17 - Prob. 17PCh. 17 - Prob. 18PCh. 17 - Prob. 19PCh. 17 - Prob. 20PCh. 17 - The treasurer of Kelly Bottling Company (a...Ch. 17 - Prob. 22PCh. 17 - Prob. 2WE
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