Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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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:

Rate of return:

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 7 percent yield; (b) corporate bonds at a 12 percent yield; or (c) preferred stock at an 8 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. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)   After Tax Yields % a. Treasury bonds   b. Corporate bonds   c. Preferred Stock
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
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