Task: Corporate After Tax Yield
Question 1. The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5 percent, state of Florida muni bonds, which yields 5 percent, and AT&T preferred stock, with a dividend yield of 6 percent. Shrieves's corporate tax rate is 35 percent, and 70 percent of the dividends received are tax exempt. Assuming that the investments are equally risky and that Shrieves chooses strictly on the basis of after-tax returns, which security should be selected? What is the after-tax rate of return on the highest-yielding security?
Cash Flow
Question 2. The Klaven Corporation has operating income (EBIT) OF $750,000. The company's depreciation expense is $200,000. Klaven is 100 percent equity financed, and it faces a 40 percent tax rate. What is the company'.